<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 17, 1998
OSMONICS, INC.
--------------
(Exact name of Registrant as specified in its charter)
Minnesota 1-12714 41-0955759
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
5951 Clearwater Drive, Minnetonka, Minnesota 55343-8995
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (612) 933-2277
Exhibit Index appears on Page 5.
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FORM 8-K
ITEM 2. ACQUISITION OF ASSETS.
On February 17, 1998, Osmonics, Inc. (the "Company") completed the
acquisition of all of the shares (the "Acquired Shares") of Micron Separations,
Inc., a New York corporation ("MSI"). MSI, located in Westborough,
Massachusetts, is a developer, manufacturer and marketer of microfilter membrane
products for laboratory, diagnostic, and industrial use. MSI revenues were less
than $15 million in each of the last three years.
MSI filed a voluntary petition for reorganization under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
Massachusetts on April 9, 1997, Case No. 97-42342-JFQ. On December 15, 1997,
pursuant to Chapter 11 of the Bankruptcy Code, MSI and the Company submitted a
Joint Plan of Reorganization (the "Plan"). The Plan was confirmed by the United
States Bankruptcy Court on January 28, 1998. Pursuant to Article VII of the
Plan, MSI's existing equity securities were canceled and Osmonics received the
Acquired Shares. The Acquired Shares consist of 1,000 shares of common stock of
the reorganized MSI, which represents 100% of the outstanding voting securities
of MSI.
Under the Plan, Osmonics will provide up to $28 million (in addition to
MSI's cash),for the payment in full of all MSI's creditors and payment to
holders of MSI's equity securities. The aggregate consideration to be paid to
holders of MSI's equity securities will not exceed $15,200,000 which amount
will be adjusted based upon the final amount of claims of MSI's creditors under
Section 1.16 of the Plan and, pursuant to Section 3.5 of the Plan, is subject to
set-off rights and a hold back of 10% of the consideration finally determined to
be payable to such holders. In addition, pursuant to Section 3.5(c) of the Plan
holders of MSI's equity securities are entitled to receive the amount, if any,
of any recovery in a certain lawsuit, less expenses.
On February 17, 1998, the Company pursuant to the Plan paid James S.
Johnson and John Greenwood, both founders and significant shareholders, and
certain other shareholders (the "Sellers") $13,633,500 in cash in consideration
for the Acquired Shares. The Company will pay up to $1,515,350 in cash to the
Sellers one year from the acquisition date subject to certain adjustments and
set off rights under the Plan as described above.
The Company also made a capital contribution of $10,000,000 in cash to
MSI on February 17, 1998 pursuant to the Plan to facilitate MSI's payment of
various creditors pursuant to the Plan. Finally, James S. Johnson and John
Greenwood were paid a total of $300,000 pursuant to consulting and
non-competition agreements executed in connection with the transaction.
FINANCING FOR THE ACQUISITION
The Company financed the acquisition (approximately $25,000,000)
through expanded interim financing arrangements in the form of a revolving
line of credit from a commercial bank. DESCRIPTION OF ACQUIRED BUSINESS
Micron Separations, Inc. is a prominent developer, manufacturer, and
marketer of microfilter membrane products for laboratory, diagnostic, and
industrial use. MSI provides a full line of microfiltration (MF) membranes to
complement the Company's existing complete line of ultrafiltration (UF), NF and
RO membranes. This includes nylon membranes 6,6 and 4,6 which are among the most
hydrophilic microfiltration membranes available, and are widely used in food,
beverage and biotech filtration. The acquisition positions the Company as a more
significant player in the laboratory and diagnostics market, while significantly
expanding its capabilities in the pleated membrane cartridge business.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
It is impracticable to provide the required financial statements at this time.
Such financial statements will be filed as soon as practicable, but not later
than 60 days after March 4, 1998, the latest date on which this Form 8-K may be
filed.
(B) PRO FORMA FINANCIAL INFORMATION.
It is impracticable to provide pro forma financial information at this time.
Such information will be filed as soon as practicable, but not later than 60
days after March 4, 1998, the latest date on which this Form 8-K may be filed.
(C) EXHIBITS. The following documents are filed as an exhibit to this Form 8-K
and are incorporated herein by reference:
EXHIBIT NO. DESCRIPTION
2.1 First Amended Disclosure Statement to Joint Plan of reorganization
Submitted by Micron Separations, Inc. and Osmonics, Inc.
2.2 Joint Plan of Reorganization submitted by Micron Separations, Inc.
and Osmonics, Inc., dated December 15, 1997 with Exhibit C.
Certain related transaction documents and exhibits (the "Exhibits") to
the First Amended Disclosure Statement are not being filed herewith. The
Registrant undertakes to furnish a copy of any omitted Exhibit to the
Commission upon request. Pursuant to Item 601(b)(2) of Regulation S-K, the
following is a list of the omitted Exhibits and Schedules.
Exhibit A - Liquidation Analysis
Certain related transaction documents and exhibits (the "Exhibits") to the Joint
Plan are not being filed herewith. The Registrant undertakes to furnish a
copy of any omitted Exhibit to the Commission upon request. Pursuant to Item
601(b)(2) of Regulation S-K, the following is a list of the omitted Exhibits and
Schedules.
Exhibit A - Form of Micron Separations, Inc. Equity Interests
Trust Agreement.
Exhibit B - Form of Settlement Agreement between Pall Corporation
and Micron Separations, Inc.
Exhibit D - List of Assumed Leases filed with the Bankruptcy Court
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OSMONICS, INC.
Date: March 4, 1998 By: /s/ D. Dean Spatz
-------------------
D. Dean Spatz
President
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EXHIBIT INDEX
The following is a list of Exhibits filed herewith. The page reference
is to the location of the Exhibits under the sequential numbering system of the
original executed copy of this report on Form 8-K where the Exhibits can be
located.
EXHIBIT NO. DESCRIPTION OF EXHIBITS Page
2.1 First Amended Disclosure Statement to Joint Plan of
reorganization Submitted by Micron Separations, Inc.
and Osmonics, Inc.
2.2 Joint Plan of Reorganization submitted by Micron Separations,
Inc. and Osmonics, Inc., dated December 15, 1997 with Exhibit C.
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EXHIBIT 2.1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
WESTERN DIVISION
)
IN RE: )
) Chapter 11
MICRON SEPARATIONS, INC. ) Case No. 97-42342-JFQ
)
Debtor. )
)
DISCLOSURE STATEMENT TO JOINT PLAN OF REORGANIZATION
SUBMITTED BY MICRON SEPARATIONS, INC. AND OSMONICS, INC.
(DECEMBER 15, 1997)
Micron Separations, Inc. ("MSI"), a New York corporation with a usual
place of business in Westborough, Massachusetts, filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. ss.101-1330 as
amended (the "Bankruptcy Code"), in the United States Bankruptcy Court for the
District of Massachusetts (the "Bankruptcy Court") on April 9, 1997, commencing
the above-captioned Chapter 11 case. MSI's Chapter 11 case has been pending
before the Honorable James F. Queenan, Jr., United States Bankruptcy Judge, as
case number 97-42342-JFQ. MSI, without interruption, has operated its business
and managed its property as debtor-in-possession pursuant to Sections 1107 and
1108 of the Bankruptcy Code since the commencement of its Chapter 11 case.
This Disclosure Statement is provided pursuant to Section 1125 of the
Bankruptcy Code to all known holders of claims against and interests in MSI (the
"Debtor") whose claims and
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interests are impaired under the Debtor's Joint Plan of Reorganization (the
"Joint Plan") and other parties in interest in connection with the solicitation
of acceptance of the Joint Plan. The purpose of this Disclosure Statement is to
provide such information as would enable a hypothetical, reasonable investor
typical of the holders of such claims and/or interests to make an informed
judgment exercising its, his or her right to vote to either accept or reject the
Joint Plan.
After hearing on notice, the Bankruptcy Court approved this Disclosure
Statement, as containing information of a kind, and in sufficient detail,
adequate to enable a hypothetical, reasonable investor typical of the classes
being solicited to make an informed judgment about the Joint Plan.
The factual information concerning the past and present activities of the
Debtor have been derived from the books and records of the Debtor. The financial
information contained in this Disclosure Statement (including the attached
exhibits) has been prepared by the Debtor's management and accountants unless
specifically stated to be from other sources. No representations, other than
those set forth herein, concerning the Debtor are authorized by the Debtor.
YOU ARE URGED TO READ CAREFULLY THE CONTENTS OF THIS DISCLOSURE STATEMENT,
INCLUDING THE JOINT PLAN AND OTHER EXHIBITS, BEFORE MAKING YOUR DECISION TO
ACCEPT OR REJECT THE
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JOINT PLAN. Particular attention should be directed to the provisions of the
Joint Plan affecting or impairing your rights as they presently exist. The
description of the Joint Plan in this Disclosure Statement is a summary only and
is qualified by reference to the actual terms and conditions of the Joint Plan
itself. The terms used herein have the same meaning as in the Joint Plan, unless
the content thereof requires otherwise.
Great effort has been made by the Debtor to be accurate in all material
respects, but the Debtor is unable to warrant or represent that all the
information contained herein is without inaccuracy. While the Debtor believes
the contents of this Disclosure Statement to be accurate and complete, the
Bankruptcy Court has not passed upon the factual accuracy of the information
contained herein.
NO REPRESENTATIONS CONCERNING THE DEBTOR, INCLUDING, WITHOUT LIMITATION,
FUTURE BUSINESS OPERATIONS, THE VALUE OF THE ASSETS, OR THE AGGREGATE DOLLAR AND
AMOUNT OF CLAIMS WHICH MAY BE ALLOWED OR FINALLY DETERMINED, ARE AUTHORIZED
OTHER THAN AS ARE SET FORTH IN THIS DISCLOSURE STATEMENT. Any representations or
inducements made to secure acceptance or rejection of the Joint Plan by
creditors or shareholders which are other than as contained in this Disclosure
Statement should not be relied upon in voting on the Joint Plan.
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THE DEBTOR RECOMMENDS THAT YOU VOTE TO ACCEPT THE JOINT PLAN.
IT IS IMPORTANT THAT YOU VOTE. Subject to certain objections, in order to
obtain confirmation of the Joint Plan by the Bankruptcy Court, the Joint Plan
must be accepted by holders of claims in Class Four WHO ACTUALLY VOTE on the
Joint Plan who hold at least a majority in number and two-thirds in amount, and
Equity Interests in Class Five WHO ACTUALLY VOTE on the Joint Plan who hold at
least two-thirds in amount. In addition, the Bankruptcy Court must make various
findings required by Section 1129 of the Bankruptcy Code, including, among
others, that confirmation of the Joint Plan is not likely to be followed by
liquidation or further financial reorganization. These requirements are more
fully discussed in Section XXVII hereof.
I. DESCRIPTION OF THE DEBTOR
The Debtor is a New York corporation formed in 1981. Initially, its
marketing and administration were located in Honeyoye Falls, N.Y., but in 1987,
marketing, administration and manufacturing were consolidated in Westborough,
Massachusetts.
The company was formed to develop, manufacture and market microporous
membranes and filters for sale to pharmaceutical, food and beverage, electronic,
OEM and research concerns. These membranes and filters, classified as
"microfiltration"
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products, remove sub-micron sized particles (from 0.05 to 20.0 microns)
suspended in liquids or gases.
At the time of the filing of the petition, the Debtor was operating its
manufacturing and distribution operations at three adjacent buildings in
Westborough, Massachusetts. Those locations are 125, 131 and 135 Flanders Road.
The company currently has approximately seventy-one employees.
MSI currently operates out of approximately 50,000 square feet of space, of
which 3,000 square feet are devoted to research, development, and a model shop,
3,000 square feet are devoted to office activities, and the remainder is used
for manufacturing and warehousing.
MSI is privately held. Approximately 35% of the stock is owned by Edward
Ackley, John Greenwood and James Johnson, collectively, who were the original
founders.
II. HISTORY OF THE BUSINESS
MSI was founded in 1981 by Edward Ackley, John Greenwood and James
Johnson. MSI began its development work on membranes in 1982 and in
that year introduced its first membrane, which was made of a mixture of
nitrocellulose and cellulose acetate polymers. In 1984 MSI introduced its first
nylon microporous membrane made of nylon 66 polymer.
MSI sells over 2,000 microfiltration products, 97% of which the company
develops and manufactures in its own facilities, and the remainder manufactured
by others and sold
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under the MSI private label. The manufacturing of microfiltration products
entails both production of the membrane itself and conversion of this material
into products useable in the marketplace.
MSI's microfiltration products can be separated into those that serve the
laboratory market (small scale applications) and those that are directed towards
the large scale, high value industrial process filtration market.
Laboratory products consists of sheets (membranes) cut in rectangular or
circular form with areas from one square centimeter to 1,500 square centimeters.
In addition, MSI produces filtration devices which are largely used by companies
in the medical and health care industries. The devices include syringe filters,
filter funnels, vacuum filter units, monitors and centrifuge filters.
MSI also produces a wide range of process filtration products. These
consist of cartridges and capsules. All of these products are available with
various membrane filter types, including: nylon filters, cellulosic filters,
PVDF (polyvinylidene diflouride), PTFE (polytetrafluoroethlylene), polysulfone
and polycarbonate.
MSI uses distributors to sell to the laboratory market and uses its own
direct sales force, distributors, and manufacturer's representatives to sell to
the industrial
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process market; MSI exports approximately 33% of its products worldwide.
III. EVENTS LEADING TO THE CHAPTER 11 FILING
On May 7, 1986, Pall Corporation (hereinafter "Pall") of Glen Cove, New
York, filed suit against MSI for infringement of a patent Pall held on a narrow
class of alcohol-insoluble, hydrophilic polyamide membrane filtered media and
product. That case bears docket number 86-1426-WGY (United Stated District Court
for the District of Massachusetts). On June 24, 1991, after a trial on the
merits, the Court entered a judgment and awarded damages to Pall for MSI's
patent infringement through that date. These pre-June 20, 1991 damages totaled
$4,434,291. Both Pall and MSI appealed the judgment. On September 26, 1995, the
U.S. Court of Appeals for the Federal Circuit affirmed the judgment of
infringement, reversed the judgment as to willful infringement, increased the
measure of damages and remanded the case for recalculation of damages. On
November 25, 1995, the Court entered a Separate and Final Judgment of
$12,250,364 together with interest from November 1, 1995 at 8.75%. On December
31, 1995, MSI filed a Petition for Certiorari with the United States Supreme
Court. The Petition was denied on March 17, 1997.
In the same case, on October 3, 1996, the Court entered a separate and
final judgment of $4,085,033, together with
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interest thereon for infringement from September 24, 1991 to September 24, 1996.
MSI sought a stay of execution on the October 3, 1996 judgment, but that was
denied. MSI then sought to appeal the denial of the stay in the United States
Court of Appeals for the Federal Circuit and filed an emergency motion for an
injunction pending the appeal. On April 18, 1997, the emergency motion was
denied.
Pall obtained an execution on the October 3, 1996 judgment and on April 9,
1997, sought to execute on the assets of MSI. MSI immediately filed the Chapter
11 proceeding.
IV. BRIEF SUMMARY OF ASSETS AND LIABILITIES
AND OTHER FINANCIAL INFORMATION AT THE TIME OF FILING
MSI's Bankruptcy Schedules and Statement of Financial Affairs, filed with
the Bankruptcy Court on May 8, 1997, indicated that MSI owed no secured debt and
nearly $12,000,000 of unsecured debt. Pall Corporation accounted for
approximately $10,750,000 of the unsecured debt and the balance was owed to 143
other trade and general unsecured creditors. In its Schedules, MSI included cash
of approximately $2,775,000, trade accounts receivable of approximately
$1,700,000, a tax refund of $1,500,000, various patents worth approximately
$500,000, machinery and equipment worth approximately $275,000 and inventory
worth approximately $750,000.
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V. STOCK OPTIONS, BONUSES, AND ERISA
As of the Filing Date there were 127,621 common stock options and warrants,
outstanding and exercisable at various prices. These options and warrants were
issued pursuant to:
1983 - Employee Options Plan
1991 - Option Plan for Directors
1991 - Options Granted with Employment Agreements
1991 - Incentive Stock Option
Furthermore, there is an employee incentive stock option plan and an
employee bonus plan for 1997. The stock option plan for fiscal year 1997
(October 27, 1996 to October 26, 1997) provides for the distribution of stock
options among a pool of 27 employees based on their salaries. The plan is based
on sales growth where a specific amount of shares will be reserved and then
later allocated to eligible employees. The threshold is 15% of growth in sales.
Once the threshold is reached, MSI will reserve 1,000 shares of stock for each
percent of sales growth in excess of last year's sales. For instance, if sales
increase 18% over last fiscal year, then 18,000 shares will be the pool from
which options will be issued.
The 1997 incentive bonus plan (fiscal year 1997) provides for a bonus
computed as a percentage of wages earned if total sales grow to certain
thresholds. This plan is available to 25 employees.
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Bonus as a
Percentage
Total Sales Growth of Wages Earned
- - ------------------ ---------------
Less than 5% 0%
5% or greater,
but less than 7.5% 1%
7.5% or greater,
but less than 10% 2%
10% or greater,
but less than 12.5% 3%
12.5% or greater,
but less than 15% 4%
15% or greater 5%
In addition, seven sales personnel would be entitled to this incentive
bonus computed, however, on the percentage increase in their territory.
The Debtor also has a 401(K) Savings Plan for employees. For fiscal year
1996 the Debtor matched 50% of the employees' first 5% of earnings and 25% on
the employees' second 5% of earnings. For fiscal year 1997, the Board of
Directors has matched contributions as in Fiscal Year 1996, and payments are
current.
VI. PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
MSI has rights to certain trademarks, including but not limited to:
1+PAC MagnaNT NitroPure
Acetate Plus MicroFuge PolyPure
Calyx MicronKlear PreSep
Cameo MicronSep PVDF-Plus
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Graviseal MagnaCharge MSI Savur Analytical
MagnaGraph MagnaLift Nitrobind Funnel
Magna Nylon NitroClear Savur Vacuum
Magna SH NitroME TefSep Filtration Unit
NitroPB UltraFuge
NitroPlus UltraSep
MSI also holds five (5) patents:
1. Patent No. 4,894,157 covers a process and product where fine support
cloth is used as an internal support for cellulose polymer filters. The patent
was issued on January 16, 1990. The abstract states the following:
A continuous process for producing a microporous cellulosic membranes
supported with an integral non-woven polymer web by preparing a casting
lacquer comprising at least one cellulosic polymer, at least one
solvent, and at least one non-solvent wherein the casting lacquer is at
the point of incipient gelation.
2. Patent No. 5,215,662 covers nylon 46 products. This patent was
issued on June 1, 1993. The abstract states the following:
Microporous nylon materials which retain near constant time to
hydrosaturation during and after heating to temperatures necessary for
sealing together a plurality of surfaces, and the synthesis thereof.
Nylon 46 dissolved into a mixture of liquid nylon 46 solvents and
nonsolvents is dispersed on a fabric substrate, then precipitated to
form a laminate, from which a wash removes the nonsolvents and forms
the microporous material.
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3. Patent No. 5,411,663 covers type 8 nylon product and process. The
patent was issued on May 2, 1995. The abstract states the following:
Alcohol-insoluble polyamide (nylon) microporous separation membranes
are prepared from alcohol-soluble polyamide (nylon) polymers. The
membranes are hydrophilic and contain cross-linked amide groups of the
structure:
--N--(CH2)d--N--
| |
C==O C==O
wherein d is an integer of about 1 to 3.
4. Patent No. 5,693,231 was issued on December 2, 1997. It is
directed to nylon membranes prepared from aromatic nylon polymers.
5. Patent No. 5,695,639 was issued on December 9, 1997. It is directed
to a novel vacuum filter funnel.
VII. TRANSACTIONS WITH INSIDERS
There are no loans from the Debtor to insiders. Certain insiders do
have options to purchase shares of common stock of the Debtor:
1. Edward J. Ackley is a director. Mr. Ackley has (i) a warrant to
purchase 5,000 shares issued on March 29, 1989 with an original exercise price
of $8.00/share, (ii) an option to purchase 5,000 shares issued January 30, 1992
with an original exercise price of $8.00 share and (iii) an option to purchase
5,000 shares issued on January 31, 1995, with an original
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exercise price of $9.00/share, the exercise price of each of which was repriced
to $3.00/share by action of the directors dated November 11, 1996.
2. John M. Greenwood is a director. Mr. Greenwood holds (i) an option
to purchase 10,000 shares issued on November 11, 1996 with an exercise price of
$3.00/share, and (ii) an option to purchase 18,000 shares issued on November 11,
1992 with an exercise price of $1.87/share.
3. James S. Johnson is a director and officer. Mr. Johnson holds (i) an
option to purchase 10,000 shares issued on November 11, 1996, with an exercise
price of $3.00/share and (ii) an option to purchase 18,000 shares issued on
November 11, 1992 with an exercise price of $1.87/share.
4. Bernard Kozel is a director. Mr. Kozel holds (i) a warrant to
purchase 5,000 shares issued on January 27, 1986 with an exercise price of
$7.00/share, (ii) a warrant to purchase 5,000 shares issued on March 29, 1989
with an original exercise price of $8.00/share, (iii) an option to purchase
5,000 shares issued on January 30, 1992 with an original exercise price of
$8.00/share, and (iv) an option to purchase 5,000 shares issued on January 31,
1995 with an original exercise price of $9.00/share, the exercise price of each
of which was repriced to $3.00/share by action of the directors dated November
11, 1996. He also holds warrants to
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purchase 9,000 shares issued on January 25, 1983, with an exercise price of
$2.50/share.
5. Wayne Miller is an officer. Mr. Miller holds an option to purchase
10,000 shares issued on October 1, 1993 with an original exercise price of
$8.00/share which was repriced to $3.00/share by action of the directors on
August 7, 1996.
6. J. William Reeves is an officer and a director. Mr. Reeves holds
(i) a warrant to purchase 5,000 shares issued on January 27, 1986 with an
original exercise price of $7.00/share, (ii) a warrant to purchase 5,000 shares
issued on March 29, 1989, with an original exercise price of $8.00/share, (iii)
a warrant to purchase 5,000 shares, issued on January 21, 1992, with an original
exercise price of $8.00/share (iv) an option to purchase 5,000 shares issued on
January 31, 1995 with an original exercise price of $9.00/share, the exercise
price of each of which was repriced to $3.00/share by action of the directors
dated November 11, 1996. He also holds a warrant to purchase 5,000 shares with
an exercise price of $2.50/share, dated January 25, 1983.
VIII. REAL PROPERTY AND LEASEHOLDS
The Debtor does not own and never has owned any interest in any real
property other than a leasehold interest. The Debtor leases three pieces of
non-residential real estate.
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It leases 131 Flanders Road, Westborough, Massachusetts from 129
Flanders Office Associates, L.P. This lease covers 7350 square feet at $4.50 per
square foot. The property is leased until March 31, 1998. The extension option
on this property lapsed on March 31, 1997. There is a prepetition rent arrearage
on 131 Flanders Road in the amount of $6,428.21.
The Debtor leases 24,400 square feet at 135 Flanders Road, Westborough,
Massachusetts from 129 Flanders Office Associates, L.P. The lease is presently
at $5.40 per square foot which will rise to $5.50 per square foot on May 1,
1998. The lease expires on April 30, 1999, but the Debtor holds an extension
option which must be exercised by April 30, 1998. The rental during any extended
term would be 95% of the fair market rental. There is a prepetition rent
arrearage of $10,821.04 on 135 Flanders Road.
The Debtor offered to pay the $17,249.25 of combined rent arrearage to
129 Flanders Office Associates, L.P. in return for a reinstatement of the
extension option on 131 Flanders Road to September 22, 1997. This was opposed by
the Committee and Pall Corporation. On September 2, 1997, the Bankruptcy Court
denied Debtor's motion to pay the prepetition indebtedness to 129 Flanders
Office Associates. Although Debtor successfully extended its time to assume or
reject the
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leases, it does not hold an option to renew its lease on 131 Flanders
Road, Westborough, Massachusetts.
The Debtor also leases units 13, 15, and 16 at 125 Flanders Road,
Westborough, Massachusetts from 125 Flanders Associates. This lease covers
approximately 15,000 square feet and the lease expires on January 31, 1999. The
present lease is $7,812.50 per month or approximately $6.25 per square foot.
Debtor has the right to renew this lease for an additional period of three (3)
years by notice by July 31, 1998. The new lease rate for the additional period
would be at market.
IX. OPERATION OF BUSINESS DURING CHAPTER 11
During Chapter 11, the Debtor's sales have continued to increase, and
the Debtor has been profitable despite extraordinary legal expenses. KPMG has
prepared the following income statement for the Chapter 11 period:
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Income Statement for Period (4/14/97-10/26/97)
(000's)
<TABLE>
<CAPTION>
<S> <C> <C>
ACTUAL
Net Revenue (Income) $ 5,643
Cost of Goods Sold (2,563)
-------
Gross Profit $ 3,080
Operating Expenses:
Selling and Marketing $ 800
General and Administrative $ 395
Miscellaneous 5
R & D 414
-------
Total Operating Expenses $ 1,615
Income Before Interest, Depreciation, Taxes, or Extraordinary 1,465
-------
Expenses
Extraordinary Income (Expense)1 (1,062)
-------
Net Income (Loss) Before Taxes $ 403
=======
</TABLE>
X. ITIGATION AND SETTLEMENT
(1) all Corporation v. Micron Separations, Inc., Civil Action No. 86-1427-WGY.
Complaint. Pall commenced this patent infringement action against MSI on May 7,
1986. Pall sought a judgment that MSI willfully infringed its patent covering
the process for preparing hydrophilic polyamide membrane filtered media and
product. Pall also sought damages for past infringement as well as an injunction
against future infringement.
___________________________
Includes legal and Professional Fees, reversal of accruals and other
miscellaneous adjustments.
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Initial Judgment. On June 24, 1991, after trial on the merits, the United States
District Court for the District of Massachusetts ("the District Court") entered
a judgment and awarded damages to Pall for MSI's patent infringement through
that date. These pre-June 20, 1991 damages, including lost profits, royalty
damages, willfulness damages and interest and attorneys' fees, totaled
$4,434,291 (the "Initial Judgment"). The District Court entered a stay of the
judgment as it related to nylon 46. Both Pall and MSI appealed the judgment.
MSI's First Chapter 11. In order to avoid execution upon the Initial Judgment,
MSI filed a voluntary petition under Chapter 11 on July 22, 1991. On December
18, 1991, Pall and MSI entered into an agreement which provided that during the
pending appeal of the Initial Judgment MSI would escrow certain monies and Pall,
subject to certain terms and conditions, would forbear from executing on a
judgment so long as MSI complied with the provisions of the agreement. The
agreement was approved by the Bankruptcy Court and, as part of the Agreement,
MSI dismissed its Chapter 11 case. The case was dismissed and closed on
December 30, 1991.
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Appellate Review of Initial Judgment. On September 26, 1995, the United States
Court of Appeals for the Federal Circuit affirmed the judgment of infringement,
reversed the judgment as to willful infringement, increased the measure of
damages and remanded the case for recalculation of damages, and vacated the stay
of the injunction as to nylon 46 membrane.
$12 Million Judgment. On November 24, 1995, in accordance with the decision of
the United States Court of Appeals, the District Court entered a Separate and
Final Judgment of $12,250,364, together with interest from November 1, 1995
through date of Judgment of 8.75% per annum, post judgment interest at the prime
rate of interest as promulgated by Citibank, N.A., and reiterated the injunction
against MSI and those in concert with MSI from infringing upon Pall's patent by
virtue of the sale, use, or manufacture of nylon 46 or nylon 66.
Certiorari Denied. On December 31, 1995, MSI filed a Petition for Certiorari
with the United States Supreme Court seeking review of the United States Court
of Appeals decision. The Petition was denied on March 17, 1997.
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<PAGE> 20
$4 Million Judgment. On October 3, 1996, the District Court entered a separate
and final judgment of $4,085,033 for infringement from June 24, 1991 to June 24,
1996, together with interest thereon from September 24, 1996 through the date of
judgment at $923 per day and post-judgment interest at the statutory rate
specified in 28 U.S.C. ss.1961.
Appeal from $4 Million Judgment. MSI filed an appeal in the United States Court
of Appeals for the Federal Circuit (Appeal 97-1141) from the $4 Million Judgment
on the grounds that the form of judgment was incorrect: that the judgment should
not be a separate judgment but should be a modification of the November 24, 1995
judgment. The matter is fully briefed and the Bankruptcy Court has lifted the
stay. MSI sought a stay of execution and in connection therewith, claimed that
the $4 million Judgment was subject to the December 18, 1991 agreement between
Pall and MSI. On April 3, 1997, the District Court ruled that the "agreement
between the parties had no effect on the judgment of this Court." Following the
ruling, MSI sought an emergency stay of execution, which was denied. Immediately
prior to the commencement of its second chapter 11 proceeding, MSI filed a
further appeal from the denial of the stay to the United States Court of Appeals
for the Federal Circuit (Appeal 97-1298) and an emergency motion for an
injunction pending
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<PAGE> 21
appeal. On April 18, 1997, the emergency motion was denied. The Bankruptcy Court
has lifted the stay nunc pro tunc to April 9, 1997. Appeal 97-1298 has been
dismissed.
(2) Micron Separations, Inc. v. Pall Corporation, Civil Action No. 94-11377-WGY.
Complaint. MSI commenced this declaratory judgment action against Pall on July
8, 1994 seeking a declaration of patent non-infringement and the invalidity of
Pall's patent. The Complaint seeks damages as well as injunctive relief. Pall
answered the Complaint on July 12, 1994 denying the allegations therein. On July
12, 1994, the District Court issued a preliminary injunction against MSI and
those acting in concert with it enjoining the manufacture, use and sale of
membrane products made of type 8 nylon. Pall also filed a Counterclaim against
MSI alleging patent infringement by MSI subsequent to the decision in Pall
Corporation v. Micron Separations, Inc., Civil Action No. 86-1427-WGY. MSI
responded to the Counterclaim on September 8, 1994 by denying the allegations
therein.
Procedural History. On September 2, 1994, Pall moved for Partial Summary
Judgment on issue preclusion. MSI opposed the Motion on September 20, 1994 and
also filed a Motion for
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<PAGE> 22
Summary Judgment of non-infringement and issue preclusion. Pall opposed MSI's
Motion on October 6, 1994, and also filed a Cross-Motion for Summary Judgment.
On November 16, 1994, the Court allowed in part and denied in part Pall's Motion
for Partial Summary Judgment.
Bench Trial. A bench trial commenced on January 26, 1995, and continued on
January 27, 30, 31, February 1, 2, 3, 6, 7, 8, 13, 14 and 15, 1995.
(3) Pall Corporation v. Micron Separations, Inc., District Court, Civil Action
No. 95-12731-WGY.
Complaint. Pall commenced this patent infringement action against MSI on
December 18, 1995. Pall seeks damages for MSI's continuing infringement of its
patent covering the process for preparing hydrophilic polyamide filter media and
product as well as an injunction against future infringement. MSI answered the
Complaint by denying the allegations therein.
Consolidation. This action was consolidated by Judge Young with C.A. No.
95-12473.
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<PAGE> 23
(4) Pall Corporation v. Fisher Scientific Company, Inc., District Court, Civil
Action No. 95-12473-WGY.
Complaint. On November 13, 1995, Pall commenced this action against Fisher
Scientific Company, Inc. ("Fisher") alleging that Fisher, as an agent for MSI
and/or as an independent distributor, sold nylon 46 membrane made by MSI after
the Court of Appeals vacated the stay of the injunction. Pall is seeking damages
for past infringement as well as injunctive relief. Fisher answered the
Complaint and denied the allegations therein. Fisher also filed a Counterclaim
against Pall seeking damages for breach of contract and filed a Third-Party
Complaint against MSI for indemnification. MSI has answered the Third-Party
Complaint and denied the allegations therein. MSI also filed a Third-Party
Complaint against Pall alleging that Pall is in violation of the December 18,
1991 Agreement. MSI amended its Answer and Third-Party Complaint on February 6,
1996 adding claims against Pall for unfair competition and commercial
disparagement in violation of the Lanham Act and tortious interference with
advantageous business relationships.
Consolidated and Amended Complaint. On July 2, 1996, Pall filed an Amended
Complaint in the consolidated action
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<PAGE> 24
including claims against both Fisher and MSI. The Amended Complaint includes
claims against Fisher for patent infringement, tortious interference with
contractual relations and violation of injunction, and claims against MSI for
patent infringement, breach of contract and violation of injunction. In
addition, the Amended Complaint includes a charge of civil conspiracy by and
between Fisher and MSI.
Administrative Closure. By order of the District Court, and in accordance with
the Settlement Agreement (defined below), this case was administratively closed,
subject to reopening in the event that: (a) the Settlement Agreement is not
approved by the Bankruptcy Court; (b) the Joint Plan is not confirmed; or (c)
Pall is not paid in accordance with the Settlement Agreement.
(5) Micron Separations, Inc. v. Pall Corporation, U.S. Bankruptcy Court
for the District of Massachusetts, Adversary Proceeding No. 97-4161-JFQ. On
April 17, 1997, the Debtor commenced an adversary proceeding against Pall
Corporation seeking a Declaration of Debtor's payment obligations to Pall under
their December 18, 1991 Agreement ("1991 Agreement"). The 1991 Agreement
obligated Debtor to pay Pall two-thirds of Debtor's net after-tax profits,
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<PAGE> 25
subject to certain adjustments, all as determined by KPMG Peat Marwick. Debtor
contended that the November 24, 1995 judgment in the amount of $12,250,364.00
(the "1995 Judgment") and the other dated October 3, 1996 in the sum of
$4,085,033.00 (the "1996 Judgment") were covered by the 1991 Agreement and, so
long as the Debtor complied with the Agreement, Pall could not execute on those
judgments against the Debtor. The Bankruptcy Court tried the case on September
22 and September 23, 1997. On September 30, 1997, Judge Queenan issued the
Court's Judgment, stating, among other things, that Debtor had not breached the
1991 Agreement and that the 1991 Agreement governs MSI's payment obligations
under the 1995 and 1996 Judgments. The Court further found that Debtor is
entitled to a credit of $3,726,429.00 on its payment obligations to Pall.
Finally, the Court enjoined Pall from taking any action to collect on the 1996
or 1995 Judgments. The September 30, 1997 Judgment was entered contingent upon
MSI's assumption of the 1991 Agreement pursuant to Court approval.
(6) Settlement. Subsequent to the September 30, 1997 decision by the
Bankruptcy Court, Pall and MSI negotiated a settlement of all of the outstanding
litigation and issues between the parties. On November 20, 1997 (effective as of
November 18, 1997), MSI and Pall entered into a Settlement Agreement
("Settlement Agreement") which provides, among
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<PAGE> 26
other things, that upon Pall's receipt of $13.5 million, it will:
a) Dismiss all pending litigation against MSI and Fisher Scientific
Company (86-1427-WGY; 94-11377-WGY; 95-12731-WGY; 95-12473-WGY)
b) Release MSI and its customers from any alleged patent infringements
occurring prior to approval of the Settlement Agreement with regard to
Pall's Patents No. 4,340,479; 4,340,480; and 5,543,047; and
c) Agree not to sue Osmonics, MSI, or MSI's customers for alleged
infringement of patents 4,340,479 and 4,340,480 through the remaining
term of those patents; and for a one year period from the date of
confirmation, not to sue MSI, MSI's customers, or Osmonics on any
alleged infringement of Patent No. 5,543,047.
MSI will:
a) Release Pall;
b) Dismiss all pending litigation against Pall (94-11377-WGY;
95-12473-WGY; 97-4161-JFQ); and
c) Agree that one year after confirmation, it will have a limited
inventory with respect to goods similar to MSI's glass over nylon clayx
cartridges if it wishes to be covered by Pall's agreement not to sue
with regard to those products.
That Settlement Agreement has been presented to the Bankruptcy Court
for its approval and is attached to the Joint Plan as an exhibit. The
description of the Settlement Agreement is summary only and is qualified by
reference to the actual terms and conditions of the Settlement Agreement itself.
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<PAGE> 27
XI. SUMMARY OF THE PROVISIONS OF THE PLAN
A summary of the principal provisions of the Joint Plan is set forth
below. All defined terms used in this Section have the meaning assigned to such
terms in Article I of the Plan unless otherwise defined herein. THIS DESCRIPTION
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN WHICH IS ATTACHED AS
EXHIBIT A, WHICH EXHIBIT SHOULD BE REFERRED TO FOR A FULL AND COMPLETE
DESCRIPTION OF THE RELEVANT PROVISIONS.
By way of summary, the Joint Plan provides for the cancellation of all
existing equity interests of the Debtor and the issuance of capital stock to
Osmonics, Inc. in consideration of Osmonics paying $28 million. Funding for the
monies distributed under the Joint Plan shall be provided from the acquisition
funds to be deposited by Osmonics and up to $3,200,000 of the cash held by the
Debtor at the Effective Date. Cash on hand up to $3,200,000 on the Effective
Date and the said $28 million will be used to pay all Allowed Administrative
Claims, tax claims, and all Class Three and Four unsecured claims, which,
pursuant to the Joint Plan, will be paid in full; Class Three claims will
receive interest at 8 1/2% per annum from April 9, 1997 to the date of payment;
Class 4 Claims will be paid in accordance with the Settlement Agreement; and
shareholders will receive approximately $15.2 million in satisfaction of their
claims and interests.
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<PAGE> 28
Shareholders will, on the Effective Date, receive $13,680,000, but from that
amount, $100,000 will be set aside to pay expenses in the Kenyon & Kenyon
litigation, $317,025 will go to the Disputed Claims Reserve for the Kenyon &
Kenyon claim, and $60,000 will go to the Disputed Claims Reserve to pay interest
on the Kenyon & Kenyon claim, if it is ever allowed. Thus, only $13,213,000 will
be distributed to shareholders. Ten (10%) percent of the shareholders'
distribution (approximately $1,520,000) will be held back and will be subject to
certain representations and warranties of the Debtor contained in Exhibit B to
the Plan. As part of their employment contracts, Osmonics will pay James Johnson
$200,000 and John Greenwood $100,000, which payment does not come from the
Funded Amount or the Debtor's cash.
The Plan and Settlement Agreement end all of the outstanding
litigation between MSI and Pall Corporation.
XII. POST-PETITION PAYMENTS MADE TO
UNSECURED PRIORITY CREDITORS
On April 9, 1997, the Debtor filed a motion requesting the Court to
enter an order permitting the Debtor to pay certain wage claims of its hourly
and salaried employees and certain commissions of its salesmen, totaling
$69,760. All such claims were due to employees for wages, vacation and
commissions, none of which were incurred more than sixty (60)
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<PAGE> 29
days prior to the Chapter 11 filing. The Debtor believes that all such payments
were entitled to priority pursuant to ss.507 of the Bankruptcy Code. No
individual employee was paid more than the statutory maximum of $4,000 per
employee. The request to pay these pre-petition claims was made on an emergency
basis after the Debtor gave notice to the twenty (20) largest creditors of the
estate, the U.S. Trustee and any other party who had filed an appearance and
request to receive pleadings filed with the Bankruptcy Court.
On August 7, 1997, the Debtor filed a motion requesting the Court to
enter an order permitting the Debtor to pay its landlord at 131 and 135 Flanders
Road in Westborough, Massachusetts, $17,249.25 in pre-petition rent. The Debtor
believed that it would seek to assume its real estate leases and payment of all
pre-petition arrearages if necessary in order to assume such leases, the
proposed plan will provide for a 100% dividend, and the landlord agreed to
extend the option (which had expired pre-petition) to renew the lease until
September 22, 1997, in exchange for the payment. The Creditors' Committee and
Pall Corporation opposed the drop dead date. On September 2, 1997, after
hearing, Judge Queenan denied the Debtor's motion to pay the landlord hearing
$17,249.25 in pre-petition rent.
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<PAGE> 30
XIII. GENERAL DESCRIPTION OF OSMONICS, INC.
Osmonics, Inc. and its wholly-owned subsidiaries design, manufacture
and market machines, systems and components used in the processing and handling
of fluids. The company was founded in 1969, and manufactures replaceable,
semi-permeable membranes and other filter media for use in fluid separation and
filtration. The company's processing equipment employs crossflow filtration
(including reverse osmosis, nanofiltration, ultrafiltration and particle
filtration), coalescing filtration, ion exchange, clarification, chromatography,
ozonation and distillation. The Company's fluid handling equipment includes
centrifugal, diaphragm and bellows pumps; electronic controllers to operate
precision valves for water conditioning; flow control and measuring devices and
instrumentation; and specialty holders and devices for retaining its membranes
and filter media.
The company's processing products are used in fractionation,
preferential separation, conditioning and purification in connection with such
processes as purification of water and industrial solutions, dewatering and
recycling of commercial and industrial fluids, pollution control and sea water
desalting. The company's principal domestic and international markets, from
which it derives
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<PAGE> 31
more than 50% of its sales, include the electronics, potable water, health care,
biotechnology, food and beverage, chemical processing, and power generation
industries.
XIV. SELECTED FINANCIAL INFORMATION
The results of Osmonics recent operations are reflected in the
following publicly available documents:
1. Securities and Exchange Commission Form 10-K for the fiscal year
ended December 31, 1996 on file with the Securities and Exchange Commission.
2. Securities and Exchange Commission Forms 10-Q for the quarters
ending March 31, 1997, June 30, 1997, and September 30, 1997, on file with the
Securities and Exchange Commission.
Copies of Osmonics Forms 10-K and 10-Q are on file with the Bankruptcy
Court clerk's office as part of the appendix to this Disclosure Statement, and
copies may be obtained upon written request directed to:
Larry A. Koch, Esq.
Maslon, Edelman, Borman & Brand
3300 Norwest Center
Minneapolis MN 55402
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<PAGE> 32
Further information regarding Osmonics is available on the world-wide
web at www.osmonics.com.
By way of brief summary, the following table outlines Osmonics'
consolidated operating results for the fiscal years ended December 31, 1996, and
December 31, 1995.
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<PAGE> 33
Consolidated Statements of Income
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------- -------------------- --------------------
INCOME STATEMENT DATE 1996 1995
---- ----
(YEAR ENDING DECEMBER 31.)
- - ----------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
SALES $155,946 $130,783
- - ----------------------------------------------------------------------- -------------------- --------------------
COST OF SALES $92,523 $74,670
- - ----------------------------------------------------------------------- -------------------- --------------------
GROSS PROFIT $63,423 $56,113
- - ----------------------------------------------------------------------- -------------------- --------------------
OPERATING EXPENSES $46,016 $40,776
- - ----------------------------------------------------------------------- -------------------- --------------------
SELLING, GENERAL AND ADMINISTRATIVE $35,079 $31,377
- - ----------------------------------------------------------------------- -------------------- --------------------
RESEARCH, DEVELOPMENT AND ENGINEERING $10,937 $9,399
- - ----------------------------------------------------------------------- -------------------- --------------------
INCOME FROM OPERATIONS $17,407 $15,337
- - ----------------------------------------------------------------------- -------------------- --------------------
OTHER INCOME (EXPENSE), NET $2,501 $1,496
- - ----------------------------------------------------------------------- -------------------- --------------------
INCOME BEFORE INCOME TAXES $19,908 $16,833
- - ----------------------------------------------------------------------- -------------------- --------------------
INCOME TAXES $6,441 $4,954
- - ----------------------------------------------------------------------- -------------------- --------------------
NET INCOME $13,467 $11,879
- - ----------------------------------------------------------------------- -------------------- --------------------
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $.93 $.83
- - ----------------------------------------------------------------------- -------------------- --------------------
</TABLE>
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<PAGE> 34
Executive Officers and
Directors of Osmonics, Inc.
D. Dean Spatz President
Chairman of the Board
Ruth Carol Spatz Secretary
Director
Howard R. Dicke Vice President, Human Resources and
Corporate Development
Treasurer
L. Lee Runzheimer Chief Financial Officer
James J. Carbonari Vice President, Sales and Marketing
Kenneth E. Jondahl Vice President, International
Andrew T. Rensink Vice President, Technology
Michael L. Snow Director
Ralph E. Crump Director
Verity C. Smith Director
Charles W. Palmer Director
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<PAGE> 35
XV. CLASSIFICATION AND TREATMENT
OF CLAIMS AND INTERESTS
The Joint Plan divides all existing claims and interests into the
classes as indicated in the following paragraphs. Although each class is
defined generally, specific reference to the Joint Plan should be made to
understand the classification of your claim:
(i.) Class One -- Administrative and Priority Claims
Administrative Claims are all claims for goods and services incurred by
the Debtor subsequent to the filing of its Chapter 11 petition on 4/9/97.
These claims (other than for professional services by attorneys, accountants
and other professionals, and such other administrative expense claims that
require Bankruptcy Court approval) shall be paid in full in accordance with
their terms as they come due in the ordinary course of the continuation of the
Debtor's business after the Effective Date. If any dispute should arise
concerning any claim for such expenses, such dispute shall be resolved by the
Bankruptcy Court and the Allowed Claim paid as provided below.
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<PAGE> 36
Administrative Claims for professional services, i.e., those of
attorneys or accountants, require Bankruptcy Court approval. Those claims will
be paid, in full, only after entry of orders by the court allowing these
claims in full or in part after notice and hearing. The estimated final fee
requests for such professionals are as follows:
Estimated Final Fees and Expenses
(including amounts previously
approved and/or paid)
<TABLE>
<CAPTION>
Professionals
<S> <C>
Jager, Smith & Stetler, P.C.
(Bankruptcy Counsel to MSI) $300,000
Testa, Hurwitz & Thibeault
(Patent Litigation Counsel to MSI) $425,000
Law Offices of Bruce Jacobs
(Special Patent Counsel to MSI) $55,000
Boylan, Brown, Code, Fowler, Vigdor & Wilson, L.L.P.
(Corporate Counsel to MSI) $20,000
KPMG Peat Marwick
(Certified Public Accountants to MSI) $147,000
Choate, Hall & Stewart
(Counsel to the Creditors' Committee) $40,000
Goodwin, Procter & Hoar(2)
(Counsel to Fisher Scientific) $607,000
</TABLE>
Jager, Smith & Stetler, as bankruptcy counsel to the Debtor, received a
retainer at the inception of the Debtor's chapter 11 case in the amount of
$95,012.00. The
(2) This claim may not require Bankruptcy Court approval. The Goodwin,
Proctor bill involves $246,000 pre-petition, $240,000 post-petition, and
$121,000 of post-petition expert expenses.
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<PAGE> 37
Debtor also has paid Creditors' Committee counsel a $25,000 retainer, pursuant
to Orders entered by the Court. Testa, Hurwitz & Thibeault had a retainer from
the Debtor in the amount of $50,000, and the Law Offices of Bruce Jacobs had a
retainer from the Debtor in the amount of $30,000.
Priority Claims are those claims which are entitled to priority,
pursuant to Section 507(a) of the Bankruptcy Code. They include certain claims
for wages (including vacation, severance and sick leave pay under Section
507(a)(3) and Section 507(a)(4)). Taxes, which are also a priority under
Section 507(a)(8), are separately classified in Class Two. Upon the
commencement of the Debtor's Chapter 11 case, the Debtor listed no such
claims. To the extent that any priority claims are subsequently filed, the
holders shall be paid in full within ten (10) days of the Effective Date or,
if disputed, when allowed by the Bankruptcy Court, whichever is later.
(ii.) Class Two -- Tax Claims
Tax claims are entitled to priority under Section 507(a)(8) of the
Bankruptcy Code. Upon the commencement of the Debtor's chapter 11 case, the
Debtor listed no such claims. The Commonwealth of Massachusetts Department of
Revenue has filed a Proof of Claim in the amount of
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<PAGE> 38
$31,124.00. The Internal Revenue Service has filed a proof of claim for
$327,222.34 for income tax liability for the year ending October 30, 1995.
This amount was set-off against a refund of $1,292,935.00. The net amount was
refunded to the Debtor. In addition, the Debtor owes the United States
Internal Revenue Service at least $14,216.31 in interest on its 1993 and 1994
1120DF. Such tax priority claims will be paid in full within (10) days of the
Effective Date or, if disputed, when allowed by the Bankruptcy Court,
whichever is later.
(iii) Class Three - General Unsecured Creditors'
Claims
Class Three consists of all general unsecured claims, except those of
Pall Corporation, but including any persons or entities asserting damages by
reason of the Debtor's rejection of any executory contract or unexpired lease
under the terms of the Joint Plan or any motion hereafter filed by the Debtor.
The Debtor's Schedules list aggregate undisputed Class Three claims in the
amount of $667,584.60. The Bankruptcy Court set August 11, 1997, as the last
day for filing Proofs of Claim in this case (other than claims resulting from
the subsequent rejection of executory contracts or unexpired leases.) The
Proofs of Claim, as filed, increased undisputed Class Three claims (without
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<PAGE> 39
regard to the Pall Claims) by $140,240.32. The landlord, 129 Flanders
Associates, did file a $311,249.44 Proof of Claim, which would only have
validity if the leases were rejected. The Debtor is not rejecting the leases.
The undisputed claims now total $807,824.92. The Debtor does not presently
intend to object to any proofs of claim other than the 129 Flanders and Kenyon
& Kenyon claims. The disputed claims of 129 Flanders and Kenyon & Kenyon bring
the total Class 3 claims to $1,436,099.30.
Holders of Class Three Claims shall be paid in full with interest at
the rate of 8 1/2% per annum within ten (10) days of the Effective Date or, if
disputed, when allowed by the Bankruptcy Court, whichever is later. Interest
will be paid for the period from April 9, 1997 to payment.
(iv) Class Four - Claims of Pall Corporation
Pall Corporation and the Debtor have entered into a Settlement
Agreement dated November 18, 1997, which has been approved by the Bankruptcy
Court on December 15, 1997. The Settlement Agreement provides for a
$13,500,000 payment to Pall. The Settlement is more fully discussed in Article
X.
(v) Class Five - Common Stock
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<PAGE> 40
Under the Joint Plan, holders of Equity Interests in the Debtor as of
the Confirmation Date will receive a pro rata share of $13,213,000 within ten
(10) days after the Effective Date. The Equity Interests Trustee will have set
aside $100,000 for the costs and expenses of the Kenyon & Kenyon litigation
and paid to the Disputed Claims Reserve $317,025 for the Kenyon & Kenyon claim
and $60,000 for interest thereon. This amount is subject to dilution if the
amount of administrative claims or unsecured claims exceeds the amounts
presently anticipated. Holders of Equity Interests shall, on the first
anniversary of the Effective Date, receive a pro rata share of $1,520,000,
less any permitted setoffs above the amount of $100,000. The Debtor has made a
series of representations and warranties concerning its assets, financial
condition and status. If there is a material variance from these
representations and warranties which reduces the value of Debtor to Osmonics,
then Osmonics has a right of set off against the 10% held back for
shareholders. Those representations and warranties are contained in Exhibit B
to the Plan on file with the Court and are also available, upon request from
Bruce F. Smith, Counsel to the Debtor at the following address:
Jager, Smith & Stetler, P.C.
One Financial Center
Boston, MA 02111
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<PAGE> 41
or from Larry A. Koch, Esq., Counsel to Osmonics at the following address:
Maslon, Edelman, Borman & Brand
3300 Norwest Center
Minneapolis, MN 55402,
Shareholders will also receive a pro rata share of the malpractice
claim the debtor is presently prosecuting against Kenyon & Kenyon. Kenyon &
Kenyon is the law firm which initially represented the Debtor in its patent
litigation with Pall. That action is pending in Worcester (Massachusetts)
Superior Court under Docket No. 94-0504. Osmonics will fund $100,000 towards
fees and expenses of that litigation and Shareholders will fund $100,000 from
the Equity Consideration towards fees and expenses in that litigation.
XVI. RIGHTS OF SHAREHOLDERS
All shares of stock and options and warrants to purchase shares of
stock in MSI will be canceled at Confirmation. New shares of stock in MSI will
be issued to Osmonics.
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<PAGE> 42
XVII. PROPOSED DIRECTORS AND OFFICERS
AND THEIR EXPECTED COMPENSATION
D. Dean Spatz Director
L. Lee Runzheimer Director
James S. Johnson Director
D. Dean Spatz Chief Executive Officer
James S. Johnson Chief Operating Officer and
President
L. Lee Runzheimer Treasurer
Ruth Carol Spatz Secretary
Neither Mr. Spatz nor Mr. Runzheimer will not receive any compensation
from the reorganized Debtor. Mr. Johnson's compensation will be $192,000/annum.
XVIII. PREFERENCES, FRAUDULENT TRANSFERS
AND OTHER CAUSES OF ACTION
After examining the books and records, the Debtor has been unable to
identify any claims concerning preferences pursuant to Section 547 of the
Bankruptcy Code. Similarly, the Debtor has been unable to identify any
fraudulent transfer claims pursuant to Sections 544 and 548 of the Bankruptcy
Code. To the extent, however, that such claims exist, they are irrelevant in
light of the 100% distribution to creditors.
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XIX. TAX CONSEQUENCES TO CREDITORS
A creditor who receives cash or property in satisfaction of its Allowed
Claim will recognize ordinary income to the extent that the amount received is
allocable to interest that accrued while the claim was in its hands. In
addition, such creditor will recognize gain or loss on the exchange equal to
the difference between the creditor's basis in the Allowed Claim and the
amount of consideration received that is not allocable to interest. The
character of any recognized gain or loss will depend upon the status of the
creditor, the nature of the claim in its hands and its holding period.
XX. MEANS FOR EXECUTION OF THE JOINT PLAN
1. Revesting of property of the estate. On the Confirmation Date,
reorganized MSI shall be revested with the property that was formerly the
property of the estate (including any claims belonging to the Debtor or the
estate) and reorganized MSI will continue its business in the ordinary course
as it existed prior to the Petition Date. Except as specifically provided
herein the property of reorganized MSI will be free and clear of all claims,
interest, liens, and encumbrances. The Kenyon & Kenyon malpractice and breach
of contract action will vest in the Equity Interests Trustee.
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<PAGE> 44
2. Distributions. The Disbursing Agent (Debtor's Counsel) will make the
distributions under the Joint Plan to Classes 1-4. The Equity Interests Trust
will distribute the Equity Consideration to Class 5. There shall be paid to
the holder of any option or warrant a distribution in the same proportion as
if such option holder were a shareholder on the Confirmation Date. The option
holder shall pay the exercise price separately to the reorganized Debtor. The
Equity Consideration will be paid to the Equity Interests Trust with its own
trustee. That Equity Interests Trustee will have the power and authority to
contest any asserted hold backs by Osmonics. That Equity Interests Trust will
make the distributions of the hold back amounts at the appropriate time for
distribution. The Equity Interests Trust will hold the cause of action and
direct the malpractice and breach of contract litigation between MSI and
Kenyon & Kenyon and will distribute the proceeds, when and if recovered.
3. Reserve for Disputed Claims.
A. On the Effective Date, the distributions reserved for the holders of
disputed claims shall be delivered to the Disbursing Agent (Debtor's Counsel)
but shall be held
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in a segregated, interest-bearing account (the "Disputed Claims Reserve") for
the benefit of holders of disputed claims entitled thereto under the Joint Plan.
There will be deposited into the Disputed Claims Reserve an amount of cash which
would have been distributed on account of the disputed claims if all disputed
claims were allowed in the full amount claimed by the holders thereof with
interest.
At the same time as a Disputed Claim becomes an Allowed Claim, the]
distribution which would have been disbursed had the Disputed Claim been an
Allowed Claim on the Effective Date shall be released from the Disputed Claims
Reserve and delivered to the holder of such Allowed Claim with ten (10) days.
XXI. FULL AND FINAL SATISFACTION
Except as otherwise provided in Section 1141 of the Bankruptcy Code or
in the Joint Plan, including by reference, the Settlement Agreement, the
payments and distributions made pursuant to the Plan will be in full and final
satisfaction, settlement, release and discharge, as against the Debtor, of any
and all claims against, and interests in, the Debtor, as defined in the
Bankruptcy Code, including, without limitation, any claim or equity interest
accrued or incurred on or before the Confirmation
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Date, whether or not (i) a Proof of Claim or Interest is filed or deemed filed
under Section 501 of the Bankruptcy Code, (ii) such claim or equity interest is
allowed under Section 501 of the Bankruptcy Code, or (iii) the holder of such
claim or equity interest has accepted the Plan.
XXII. EFFECT OF CONFIRMATION
Except as otherwise provided in the Joint Plan, including by reference,
the Settlement Agreement, all creditors and Equity Interest Holders shall be
precluded after the Confirmation Date from asserting against the Debtor or the
reorganized Debtor, or any of its assets or properties, any other or further
claims or interests based upon any act or omission, transaction or other
activity of any kind or nature that occurred prior to the Confirmation Date, the
Confirmation Order being deemed to permanently enjoin such creditors and
interest holders, their successors and assigns, from enforcing or seeking to
enforce any such claims or interests.
The Confirmation Order shall provide that, on the Effective Date, the
duties, obligations, and responsibilities of the Creditors' Committee, their
agents, their representatives and counsel shall come to an end, and the
Committee and its counsel, shall be discharged from
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their duties, obligations, and responsibilities herein, and the Committee shall
cease to exist.
To the extent permitted by applicable law, its counsel may seek
compensation and reimbursement of expenses. Members of the Committee may seek
reimbursement of their actual, reasonable and necessary expenses.
XXIII. EXECUTORY CONTRACTS AND UNEXPIRED LEASES
Pursuant to the Joint Plan, the Debtor in Possession will file a list
of executory contracts and unexpired leases to be assumed and assigned under the
Joint Plan at least ten (10) days prior to the hearing on confirmation of the
Joint Plan with "cure" payments, if any, to be made by Debtor. Each other
executory contract or unexpired lease that either (i) has expired by its own
terms prior to the Effective Date and was not rejected during the chapter 11
case, or (ii) has not expired by its own terms prior to the effective date, was
not rejected during the chapter 11 case, and is not subject to a pending motion
to assume as of the Effective Date or does not appear in the above-referenced
list of executory contracts and unexpired leases to be assumed will be deemed
rejected as of the Effective Date. The 1991 Agreement will be rejected on the
Effective Date. Any claim for damages arising from the rejection of
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any executory contract or unexpired lease not rejected prior to Confirmation
must be filed with the Bankruptcy Court within twenty (20) days following the
Effective Date or be forever barred from receiving any distribution of the Plan.
Debtor will have 30 days from date of filing of claim to file any objection. Any
such claim for rejection, as and to the extent allowed by final order of the
Bankruptcy Court, will be a Class Three claim under the Plan.
XXIV. CONFIRMATION REQUIREMENTS
In order for the Joint Plan to be confirmed, the Bankruptcy Code
requires, among other things, that the Joint Plan be proposed in good faith,
that the Debtor disclose specified information concerning payments made or
promised to insiders, and that the Joint Plan comply with the applicable
provisions of chapter 11 of the Bankruptcy Code. Section 1129(a) of the
Bankruptcy Code also requires that at least one class of claims has accepted the
Joint Plan, that confirmation of the Joint Plan is not likely to be followed by
the need for further financial reorganization, and that the Joint Plan be fair
and equitable with respect to each class of claims or equity interest which is
impaired under the Joint Plan. The Bankruptcy Court can confirm the Joint Plan
if it finds
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that all of the requirements of 1129(a) of the Bankruptcy Code have been met.
Even if a plan is rejected by a class, the plan may still be confirmed under the
"cram-down" provisions of Section 1129(b), discussed in Article XXVII.
THE DEBTOR BELIEVES THAT THE JOINT PLAN SATISFIES ALL
OF THE REQUIREMENTS FOR CONFIRMATION.
XXV. BEST INTERESTS OF CREDITORS TEST
Under the best-interest test, the Plan is confirmable if, with respect
to each impaired Class of Claims or Interests, each holder of an Allowed Claim
or an Allowed Interest in such Class has either (i) accepted the Plan or (ii)
receives or retains under the Plan, on account of its Claim or Interest,
property of a value, as of the Effective Date, that is not less than the amount
such holder would receive or retain if the Debtor were to be liquidated under
Chapter 7 of the Bankruptcy Code.
To determine what the holders of each class of claims or interest would
receive if the Debtor were to be liquidated, the Bankruptcy Court must determine
the dollar amount that would be generated from the liquidation of the Debtor's
assets in a Chapter 7 liquidation case. The amount that would be available for
satisfaction of the
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Allowed Claims and Allowed Interests of the Debtor would consist of the proceeds
resulting from the disposition of the assets of the Debtor augmented by the cash
held by the Debtor at the time of the commencement of the Chapter 7 case. Such
amounts would be reduced by the costs and expenses of the liquidation and by
such additional Administrative Priority Claims and Other Priority Claims that
might result from the termination of the Debtor's business and the Chapter 7
case.
The costs of liquidation under Chapter 7 would include the fees payable
to the Trustee appointed in the Chapter 7 case as well as those that might be
payable to other professional persons employed by the Trustee. Priority Claims
in the liquidation case would also include any unpaid expenses incurred by the
Debtor in the Chapter 11 case, such as compensation for attorneys, financial
advisors, and accountants, as well as costs and expenses of members of the
Committee appointed in the Chapter 11 case. In addition, Priority Claims may
arise by reason of the breach or rejection of obligations incurred in Executory
Contracts entered into by the Debtor during the pendency of the Chapter 11 case.
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To determine if the plan that is proposed is in the best interest of
creditors and interest holders, the present value of the distributions likely to
be made to each class in a liquidating case are compared with the present value
of the distribution to such impaired class provided for by the Plan. Exhibit "A"
attached to this Disclosure Statement provides a detailed analysis of the most
likely outcome of an orderly liquidation of the Debtor conducted by a Chapter 7
trustee and the net distribution after payment of expenses to each class. It
concludes that in a liquidation creditors could expect a return in the 32-45%
range. Equity interests would receive nothing.
In applying the best-interest test, it is possible that claims in a
Chapter 7 case may not be classified in the same manner as provided for by the
Plan. Priority and orders of distribution of estate assets are established by
the applicable provisions of Chapter 7. Under those provisions, each class of
claims is paid in a descending order of priority. No junior classes of claims
are paid until all senior classes have received payment in full. In the event
that available assets are insufficient to pay all members of such class in full,
then each member of that class shares on a pro rata basis. The Debtor believes
that in the event of liquidation under the auspices of a chapter
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7 Trustee, Priority Claims would be paid, some portion of the unsecured claims
would be paid, and existing equity interests would receive no distribution with
respect to their interest. In contrast, under the Joint Plan, all Priority
Claims would be paid the full amount of their Allowed Claims, General Unsecured
Claims will be paid the full amount of their Allowed Claims, and Holders of
Equity Interests will be paid approximately $15.2 million, less any potential
setoffs, dilution due to any larger claims of creditors, the amount necessary to
satisfy the Kenyon & Kenyon claim and the amount necessary to fund the Kenyon &
Kenyon claim.
THUS, THE DEBTOR BELIEVES THAT THE JOINT PLAN IS IN THE BEST INTEREST
OF ALL CLAIM HOLDERS.
XXVI. FEASIBILITY OF THE PLAN
Bankruptcy law provides that a plan may be confirmed only if the
Bankruptcy Court finds that it will not lead to the need for further
reorganization or liquidation. In other words, the Plan must be feasible. Since
the Plan provides for MSI to continue in business, the Court must be satisfied
that MSI will not only be able to make the payments due on the Effective Date of
the Plan, but will also be able to meet its obligations thereafter, whether
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arising under the Plan or incurred under the operation of MSI's business. Since
all the creditors will be paid in full on the Effective Date or when a Final
Order is entered by the Court, there is no issue of feasibility.
XXVII. ACCEPTANCE AND CONFIRMATION OF THE PLAN
Bankruptcy law provides for a plan of reorganization to group various
claims and stock interests into classes, each consisting of parties having
similar legal rights in relationship to the Debtor. Each class may then be
treated as either "impaired" or "unimpaired" under a plan of reorganization.
There are three (3) ways in which a plan may leave a claim or interest
"unimpaired": first, the plan may not propose to alter the legal, equitable or
contractual rights of the holder of the claim or interest; second, all defaults
may be cured and the original terms of the obligation reinstated; third, a plan
of reorganization may provide for payment in full of the obligation to the
holder of the claim or interest. If a class is unimpaired, it is presumed to
vote in favor of the Plan.
An impaired class that would receive nothing under a proposed plan is
presumed to have rejected the plan. An impaired class that is proposed to
receive any distribution (whether in cash, securities, or other property) has
the
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right to vote, as a class, to accept or reject the plan. A class of creditors
accepts the plan if more than one-half (1/2) of the ballots that are timely
received from members of the class representing at least two-thirds (2/3) of the
dollar amount of the claims for which ballots are timely received, vote in favor
of the plan. A plan under which any class of claims is impaired may be confirmed
by the Court only if it has been accepted by at least one such class.
A plan that is rejected by any class may be confirmed under the
"cram-down" provisions of the bankruptcy law if the Court finds that the plan is
fair and equitable to, and does not discriminate unfairly against, the rejecting
class. In general terms, a plan is fair and equitable to a class if (i)
unsecured claims are either paid in full or no junior class (such as any class
of stockholders) will retain anything under the plan; (ii) preferred
stockholders if a liquidation preference will be paid in full or if no junior
class will retain anything under the plan; (3) common stockholders if they are
paid the full value of their stock (if any). In this context, payment in full
means either immediate payment or else payments over time having a present value
equivalent to immediate payment.
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The Plan divides creditor claims and equity holder interests into five
classes. Classes One and Two are unimpaired and thus deemed to accept the Plan.
Classes Three, Four, and Five are impaired and may vote to accept or reject the
Plan.
The Debtor and Osmonics believe that the Plan meets all the
prerequisites of confirmation.
XXVIII. MANNER OF VOTING
All persons entitled to vote on a plan may cast their vote for or
against such Plan by completing, dating, and signing the Ballot for Accepting or
Rejecting Plan (the "Ballot") accompanying this Disclosure Statement and
returning it in the enclosed envelope addressed to:
Bruce F. Smith, Esq.
Jager, Smith & Stetler
One Financial Center
Boston, MA 02111
(617)951-0500
IN ORDER TO BE COUNTED, ALL BALLOTS MUST BE RECEIVED AND FILED WITH THE
COURT AT OR BEFORE 4:00 PM (EASTERN STANDARD TIME) ON __________________. A
TELECOPY OF YOUR
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BALLOT OR A TELEGRAM REFERRING TO YOUR BALLOT WILL NOT BE
SUFFICIENT.
The holders of Allowed Claims or Interests which are deemed impaired
under a particular plan are entitled to vote to accept or reject such plan. The
Code provides that votes will be counted only if submitted by a Claimant or
Interest holder whose Claim or Interest is scheduled by the Debtor as
undisputed, noncontingent and liquidated, whose Claim or Interest is scheduled
and otherwise of record as of _______ (the last date for filing Ballots), and
who, prior to August 11, 1997, Bar Date has filed with the court a Proof of
Claim or Proof of Interest which is not disputed and has not been disallowed,
disqualified or suspended prior to computation of the vote on the applicable
plan. A Claim or Interest to which an objection has been filed is not an Allowed
Claim or an Allowed Interest unless and until the Court rules on the objection.
Further, the Code provides that the Court may estimate or temporarily allow a
disputed Claim or Interest for purposes of voting on the applicable Plan.
As a Claimant or Equity Interest holder entitled to vote on a Plan,
your vote is important. In order for the Plan to be accepted and thereafter
confirmed by the Court,
acceptance of such plan is required by each class entitled to vote on same. A
class of claimants has accepted a plan when holders of one-half (1/2) in number
and two-thirds (2/3) in amount in that class has voted to accept such plan. A
class of Equity Interest holders has accepted a plan when holders of two-thirds
(2/3) in amount in that class has voted to accept such plan. In each instance,
whether the requisite votes have been cast to accept a plan is determined solely
by reference to the dollar amount in the total number of Claims or Interest held
by those of the class that actually voted to accept or reject a plan.
XXIX. CONFIRMATION HEARING
The Bankruptcy Code requires the Bankruptcy Court, after notice, to
hold a confirmation hearing on the Joint Plan. An objection to confirmation may
be filed in accordance with the provisions herein.
The confirmation hearing on the Joint Plan has been scheduled for
__________ 1998 at _______ AM before Judge James F. Queenan, Jr., of the United
States Bankruptcy Court for the District of Massachusetts, Donohue Building, 595
Main Street, Worcester, MA 01608. The confirmation hearing may be adjourned from
time to time by the Bankruptcy Court without further notice, except for an
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announcement made at the confirmation hearing to those in attendance. However,
the dates of any adjournment may be obtained from counsel to the Debtor or
counsel to the Creditors' Committee. Any objection to confirmation must be made
in writing, setting forth in detail the basis of the objection, and filed with
the Clerk of the Bankruptcy Court, and served upon the following:
Bruce F. Smith, Esq.
Jager, Smith & Stetler
One Financial Center
Boston, MA 02111
Counsel to Debtor
Paul Moore, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Counsel to Creditors' Committee
XXX. ALTERNATIVES TO THE PLAN
The Debtor believes that the Joint Plan provides its creditors and
equity security holders with the greatest possible value that could be realized
on their respective Claims and Interests. The alternatives to confirmation of
the Plan are (i) confirmation of an alternative plan of reorganization submitted
by the Debtor or by another party in interest or (ii) liquidation of the Debtor
under Chapter 7 of the Code. Since the Filing Date, the Debtor has been engaged
in extensive negotiations with numerous parties
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having interests in the Chapter 11 reorganization proceedings. The Debtor has no
reason to believe that any further negotiations regarding the plan of
reorganization with any of the parties having an interest in the Chapter 11
reorganization proceedings would lead to an alternative plan of reorganization
or plan of liquidation that could be confirmed within a reasonable period of
time without protracted litigation.
Under Section 1121 of the Code, a Debtor has the exclusive right to
file a plan of reorganization during the first one hundred twenty (120) days
after the commencement of its Chapter 11 case and to obtain acceptance thereof
during the period of sixty (60)days thereafter. The court has entered an order
extending the Debtor's exclusive right to file a plan of reorganization up to
and including December 15, 1997.
Alternatively, a liquidation of the Debtor could be carried out with
the results described above (Best Interests of Creditors and Shareholders). For
the reasons described, the Debtor believes that the distribution to each
impaired class under the Joint Plan will be greater and earlier than
distributions that might be received after liquidation of the Debtor. The Debtor
believes that
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confirmation of the Joint Plan is preferable to the alternatives described above
because the Joint Plan provides for an equitable, early distribution to all
classes of the Debtor's creditors and preserves value for equity security
holders; any alternative to confirmation of the Joint Plan would result in
significant delays in and probable diminution of recoveries.
XXXI. RETENTION OF JURISDICTION
The Bankruptcy Court shall retain jurisdiction with respect to the
Debtor's case pursuant to the provisions of Chapter 11 of the Bankruptcy Code
until all Claims and Equity Interests affected by this Plan are Finally
Determined, and with respect to the following matters:
A. To enable the Debtor to commence, prosecute, settle, compromise,
abandon or consummate any and all claims of the Debtor against any person or
entity, except as otherwise provided in the Joint Plan;
B. To adjudicate all controversies concerning the classification of
any Claims or Equity Interests;
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C. To hear and determine all Claims arising from the rejection of any
executory contract or unexpired lease and to consummate the rejection thereof;
D. Except as otherwise provided by the Plan, to adjudicate all Claims
to a security or ownership interest in any Properties of the Debtor or in any
proceeds thereof.
E. To liquidate damages or estimate Claims in connection with any
disputed, contingent or unliquidated Claims;
F. To hear and determine all controversies, suits and disputes that may
arise in connection with the interpretation, consummation or performance of this
Plan as well as all controversies, suits and disputes that may be pending before
the Bankruptcy Court on or before the Confirmation Date.
G. To determine and allow all expenses of administration incurred prior
to or on the Confirmation Date, including all requests for compensation of fees
and expenses by Debtor's counsel, including special counsel and counsel to the
Creditor's Committee and, to the extent permitted by applicable law and approved
by the Bankruptcy
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Court, reimbursement of reasonable expenses of members of the Committee;
H. To recover all assets and properties of the Debtor, wherever
located.
I. To interpret, construe or enforce the Joint Plan or any order
previously entered herein;
J. Except as otherwise provided in the Plan, to hear, determine and
enforce any and all causes of action that the Debtor may have brought, or the
Debtor may bring, to set aside liens or encumbrances to recover any transfers,
assets or damages to which the estate may be entitled, or to subordinate or
disallow, in whole or in part, any Claim herein, under applicable provisions of
the Bankruptcy Code and other Federal, State or local law, and to determine
allowance of fees and disbursements of counsel in connection therewith;
K. To insure that the purpose and intent of the Joint Plan are
effectuated;
L. To hear and determine all issues with regard to the administration
and operation of the Equity Interests Trust.
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M. To adjudicate all claims and controversies between Osmonics, Inc.
and the Equity Interests Trust.
N. To make such orders as are necessary or appropriate to carry out the
provisions and intent of the Joint Plan.
Respectfully submitted,
MICRON SEPARATIONS, INC.
By:
------------------------------
Dated: December 15, 1997
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
I. DESCRIPTION OF THE DEBTOR....................................................................4
II. HISTORY OF THE BUSINESS......................................................................5
III. EVENTS LEADING TO THE CHAPTER 11 FILING......................................................7
IV. BRIEF SUMMARY OF ASSETS AND LIABILITIES AND OTHER
FINANCIAL INFORMATION AT THE TIME OF FILING..................................................8
V. STOCK OPTIONS, BONUSES, AND ERISA............................................................9
VI. PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES................................................10
VII. TRANSACTIONS WITH INSIDERS..................................................................12
VIII. REAL PROPERTY AND LEASEHOLDS................................................................14
IX. OPERATION OF BUSINESS DURING CHAPTER 11.....................................................16
X. LITIGATION AND SETTLEMENT...................................................................17
XI. SUMMARY OF THE PROVISIONS OF THE PLAN.......................................................27
XII. POST-PETITION PAYMENTS MADE TO UNSECURED PRIORITY ............................................
CREDITORS...................................................................................28
XIII. GENERAL DESCRIPTION OF OSMONICS, INC........................................................30
XIV. SELECTED FINANCIAL INFORMATION..............................................................31
XV. CLASSIFICATION AND TREATMENT OF CLAIMS AND INTERESTS........................................35
XVI. RIGHTS OF SHAREHOLDERS......................................................................41
XVII. PROPOSED DIRECTORS AND OFFICERS AND THEIR EXPECTED
COMPENSATION................................................................................42
XVIII. PREFERENCES, FRAUDULENT TRANSFERS AND OTHER CAUSES OF
ACTION......................................................................................42
XIX. TAX CONSEQUENCES TO CREDITORS...............................................................43
XX. MEANS FOR EXECUTION OF THE JOINT PLAN.......................................................43
XXI. FULL AND FINAL SATISFACTION.................................................................45
XXII. EFFECT OF CONFIRMATION......................................................................46
XXIII. EXECUTORY CONTRACTS AND UNEXPIRED LEASES....................................................47
</TABLE>
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<TABLE>
<S> <C> <C>
XXIV. CONFIRMATION REQUIREMENTS...................................................................48
XXV. BEST INTERESTS OF CREDITORS TEST............................................................49
XXVI. FEASIBILITY OF THE PLAN.....................................................................52
XXVII. ACCEPTANCE AND CONFIRMATION OF THE PLAN.....................................................53
XXVIII. MANNER OF VOTING............................................................................55
XXIX. CONFIRMATION HEARING........................................................................57
XXX. ALTERNATIVES TO THE PLAN....................................................................58
XXXI. RETENTION OF JURISDICTION...................................................................60
</TABLE>
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EXHIBIT 2.2
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
WESTERN DIVISION
- - ----------------------------
)
IN RE: )
) Chapter 11
MICRON SEPARATIONS, INC. ) Case No. 97-42342-JFQ
)
Debtor-in-Possession. )
)
- - ----------------------------
JOINT PLAN OF REORGANIZATION SUBMITTED BY
MICRON SEPARATIONS, INC AND OSMONICS, INC.
(DECEMBER 15, 1997)
INTRODUCTION
Micron Separations, Inc. ("MSI"), a New York Corporation ("Debtor"), and
Osmonics, Inc. ("Osmonics"), a Minnesota corporation hereby jointly propose the
following plan of reorganization (the "Plan"). Capitalized words not
specifically defined herein shall have the meaning ascribed to them under the
Bankruptcy Code.
The Plan provides for the cancellation of all existing equity interests of
the Debtor and the issuance of capital stock to Osmonics, in consideration of
funding by Osmonics of $28,000,000 under the Plan which cannot be funded from
the Debtor's cash. Up to $3,200,000 of the Debtor's cash on the Effective Date
will also be applied to the payment of claims. In addition to the full payment
of claims with interest at 8 1/2% per annum from the Filing Date of all the
Debtor's unsecured
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creditors other than Pall Corporation, which will receive a fixed payment and a
release pursuant to a certain Settlement Agreement, the Plan provides for
substantial payments to holders of the Debtor's equity interests. Osmonics has
provided a $2,500,000 stand-by letter of credit to secure its obligations under
the Plan.
ARTICLE I - DEFINITIONS
As used in this Plan, the following capitalized terms shall have the
meanings specified below unless the context requires otherwise:
1.1 Administrative Claims: Allowed Claims under Section 507(a)(1) of the
Code, and all fees and charges assessed against the Debtor's estate under
chapter 123 of title 28, United States Code.
1.2 Allowed Claim: A claim which meets both of the following tests: (i)
with respect to which a proof of claim was timely filed with the court or which
was scheduled in the list of creditors which was filed with the Court by the
Debtor and not listed as disputed, contingent, or unliquidated as to amount,
and (ii) as to which no objection to allowance thereto has been interposed or
any such objection has been withdrawn, overruled, or resolved by a Final Order.
1.3 Assets: With respect to the Debtor, all of the right,
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title, and interest in and to property of whatsoever type or nature, of the
Debtor as of the Effective Date, together with assets subsequently acquired or
leased by such Debtor, and including, but not limited to, property as defined
in Section 541 of the Bankruptcy Code (an identified item of property being
sometimes referred to as an Asset).
1.4 Bankruptcy Code: Title 11 of the United States Code.
1.5 Bar Date: The deadline determined by the Bankruptcy Court for the
filing of Claims. Except as provided herein with respect to Administrative
Claims and except for Claims arising from the rejection of leases or executory
contracts, all Claims were required to be filed by August 11, 1997, in order to
receive any distributions under the Plan.
1.6 Chapter 11: Chapter 11 of the Bankruptcy Code.
1.7 Claim: Any right to payment from the Debtor existing as of the
Petition Date, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured; any right to an equitable remedy for
breach of performance existing as of the Filing Date, if such breach gives rise
to a right of payment from the Debtor, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured or
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unsecured.
1.8 Committee: The Official Unsecured Creditors' Committee, appointed in
this case by the U.S. Trustee.
1.9 Confirmation Date: The date the Confirmation Order confirming this
Plan is entered.
1.10 Confirmation Order: The written order entered by the Court confirming
the Plan pursuant to Section 1129 of the Bankruptcy Code.
1.11 Court: The United States Bankruptcy Court for the District of
Massachusetts.
1.12 Debtor: Micron Separations, Inc., a New York Corporation, the
petitioner herein.
1.13 Disclosure Statement: That document filed in this case by the Debtor
pursuant to Section 1125(b) of the Code as it may be amended, modified, and, as
approved by the Court, supplemented by the Debtor, and approved by the Court.
1.14 Disputed Claim Reserve: A segregated account holding the cash for any
disputed claims and interest thereon.
1.15 Effective Date: The first business day following entry of the Court's
Confirmation Order for this Plan or such other date as Debtor in its sole
discretion shall choose.
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1.16 Equity Consideration: Debtor's available cash at the Effective Date
(not to exceed $3,200,000), plus the Funded Amount, less any amount
paid to fund Allowed Claims (including the Pall settlement) and Administrative
Claims (at Confirmation or thereafter), and less any amounts held in the
Disputed Claims Reserve and less any amounts held in the Disputed Claims
Reserve other than the amounts held for the disputed Kenyon & Kenyon claim, but
in no event shall the Equity Consideration be more than $15,200,000.
1.17 Equity Interest: Any per share equity interest in the Debtor
outstanding as of the Effective Date including, without limitation, issued and
outstanding shares of the Common Stock, Preferred Stock, and outstanding
Options and warrants.
1.18 Equity Interests Trust: A trust, a copy of the agreement of trust,
which is appended to the Plan as Exhibit A for the benefit of Equity Interests
to hold and distribute the Equity Consideration and the litigation denominated
MSI v. Kenyon & Kenyon, and to represent the interests of its beneficiaries
with respect to those assets.
1.19 Estate: The estate created in this case under Section 541 of the
Bankruptcy Code.
1.20 Existing Common Stock: Debtor's authorized Common Stock, $.01 par
value of share.
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1.21 Filing Date: April 9, 1997.
1.22 Final Order: An order or judgment of the Court as entered on its
docket that has not been reversed, stayed pursuant to Bankruptcy Rule 8005,
modified, or amended, and as to which the time to appeal, petition for
certiorari, or seek reargument or rehearing has expired, and as to which no
notice of appeal, petition for certiorari, or motion for reargument or
rehearing was timely filed, or as to which any right to appeal, petition for
certiorari or motion for reargument or rehearing has been waived in writing in
a manner satisfactory to the Debtor, or if a notice of appeal, petition for
certiorari or petition for reargument or rehearing was timely filed, the order
or judgment of the Court has been affirmed by the highest court to which the
order or judgment was appealed or from which the reargument or rehearing was
sought, or certiorari has been denied, and the time to file any further appeal
or to petition for certiorari or to seek further reargument or rehearing has
expired.
1.23 Finally Determined: The date on which the allowed amount of a Claim
is determined by a Final Order.
1.24 Funded Amount: The $28,000,000 to be paid by Osmonics pursuant to
the Plan.
1.25 General Unsecured Claims: All unsecured pre-chapter 11 Claims (which
arose pre-petition or which are deemed by law or
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order of the Court to have arisen pre-petition) which are classified in Class 3.
1.26 New Common Stock: 1,000 shares of Common Stock of the reorganized
Debtor to be issued to Osmonics on the Effective Date.
1.27 Options: All options, warrants and other rights to purchase shares
of existing Common Stock or Preferred Stock from the Debtor, all of which being
fully vested as of the date of filing of the Plan for purposes of determining
the number of Equity Interests covered thereby.
1.28 Osmonics: Osmonics, Inc., a Minnesota corporation, with a principal
place of business at 5951 Clearwater Drive, Minnetonka, Minnesota.
1.29 Pall Claims: All claims of Pall Corporation described in that
certain Settlement Agreement dated as of November 18, 1997, by and between MSI
and Pall Corporation ("Settlement Agreement"), a copy of which is attached
hereto as Exhibit B and made a part hereof.
1.30 Preferred Stock: Debtor's authorized Series A Preferred Stock,
$1.00 par value per share.
1.31 Priority Claim: Any Claim which, if allowed, would be entitled to
priority under Section 507(a) of the Code, other
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than an Administrative Claim or a Tax Claim.
1.32 Proponents: The Debtor and Osmonics.
1.33 Tax Claims: Claims of any person for the payment of Taxes (a)
accorded a priority pursuant to Section 507(a)(1) and (8) of the Bankruptcy
Code, but excluding all Claims for post-petition interest and pre-petition and
post-petition penalties, all of which interest and penalties shall be (i)
deemed disallowed and (ii) discharged on the Confirmation Date, or (b) those
secured by valid liens on assets of the Debtor on the Confirmation Date, but
excluding all Claims for post-petition interest and pre-petition and
post-petition penalties, all of which interest and penalties shall be (i)
deemed disallowed and (ii) discharged on the Confirmation Date, and,
additionally, all Liens shall be deemed and legally treated as released, voided
and discharged on the Confirmation Date.
ARTICLE II - CLASSIFICATION OF CLAIMS AND INTERESTS
2.1 The Claims of the Creditors and the holders Equity Interests are
divided into the classes described below:
Class 1: Administrative and Priority Claims
Class 2: Tax Claims
Class 3: All Unsecured Claims (excluding the Pall claims), including, but
not limited to, all Allowed Claims by persons or
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entities resulting from the Debtor's rejection of any executory contract or
unexpired leases.
Class 4: Pall Claims.
Class 5: All Claims of holders of Equity Interests.
2.2 Any holder of a Claim or Equity Interest that fails to object in
writing to the classifications provided in this Plan by the date set by the
Bankruptcy Court for objections to Confirmation to the Plan shall be deemed to
have accepted such classifications and be bound thereby.
ARTICLE III - TREATMENT OF CLAIMS AND
EQUITY INTERESTS BY CLASSES
Each Class shall be provided the treatment set forth below.The parties in
interest should review both the Plan and the Disclosure Statement to determine
their rights. Any discrepancies between the Plan and the Disclosure Statement
shall be controlled by the language of the Plan.
3.1 Class 1 - Administrative and Priority Claims
a. Operating expenses incurred in the conduct of the business of the
Debtor since the Petition Date, to the extent not paid by the Debtor in the
ordinary course of business through the Effective Date, shall be paid by the
reorganized Debtor as such expenses come due in the ordinary course of
business.
b. Other Administrative Claims, including without limitation professional
fees and expenses and expenses of members of the
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Creditors' Committee, shall be paid in cash within ten (10) business
days after the later of the (i) the Effective Date or (ii) a Final Order
allowing such expenses.
3.2 Class 2 - Tax Claims
Each Class 2 Tax Claim shall be paid in full in cash within ten (10)
business days after the later of (a) the Effective Date or (b)the date such
claim is Finally Determined unless the holder of a Class 3 Claim shall agree in
writing with the Debtor to a less favorable treatment.
3.3 Class 3 - General Unsecured Claims
In full satisfaction of each Class 3 General Unsecured Claim, the
Disbursing Agent shall pay each holder of an allowed general unsecured claim in
cash with interest at 8 1/2% per annum from April 9, 1997, within ten (10)
business days after the later of (a) the Effective Date or (b) the date such
claim is Finally Determined.
3.4 Class 4 - Pall Claims
Pall Corporation shall receive the treatment as set forth in the
Settlement Agreement, including, without limitation, the payment of $13,500,000
in cash by the Disbursing Agent.
3.5 Class 5 - Equity Interests
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(a) Holders of Equity Interests shall receive within ten (10) days of the
Effective Date an amount in cash equal to ninety percent (90%) of the
Equity Consideration. Each holder of Equity Interests shall receive with
respect to each Equity Interest a Pro-Rata Portion of the Equity Consideration.
In the case of an Equity Interest that is a Preferred Stock, it will be treated
as if it had been converted to the same number of Common Shares. In the case
of an Equity Interest that is an Option, the Equity Holder shall pay the option
exercise price separately to the reorganized Debtor, prior to Debtor's payment
of the Equity Consideration therefor. "Pro-rata Portion" means the per share
number of Equity Interests held by a holder of Equity Interests divided by the
total number of Equity Interests held by all holders of Equity Interests. For
purposes of determining a holder's Pro-rata Portion, each Option shall be
considered fully vested and exercisable notwithstanding anything to the
contrary set forth in any written agreement between the Debtor and the holder
of the Option (an "Option Agreement") with respect to vesting of such Option.
(b) On or before the first anniversary of the Effective Date, Osmonics
shall pay to the Equity Interests Trust, for distribution to the holders of
Equity Interests in accordance with their Pro-rata Portion of said payment, an
amount equal to the sum of (i) ten (10%) percent of the Equity Consideration
minus (ii) the amount of any Set-off Right (as defined below)
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properly taken by Osmonics plus (iii) interest on the amount paid at
the rate of 8 1/2% per annum from the Effective Date to the date of payment.
(c) Osmonics shall pay to the Equity Interests Trust $100,000 towards the
costs and expenses of the MSI v. Kenyon & Kenyon litigation (the "K & K
litigation"), which shall be reimbursed first from any recovery in such
litigation. The Holders of Equity Interests shall also advance $100,000 to the
Equity Interests Trust for the costs and expenses involved in prosecuting the K
& K Litigation. Such $100,000 shall be taken from the Equity Consideration and
held by the trustee for use in the K & K litigation. Each holder of Equity
Interests shall receive its Pro-rata Portion of the net amount of any recovery
as a result of the K & K litigation after payment of any costs and expenses
involved in the K & K litigation, reimbursement of the $100,000 advance by
Osmonics, the fees and expenses of the trustee, and payment or provision for
taxes resulting from such recovery.
(d) (1) Osmonics will have the right to set-off ("Set-off Right") against
the unpaid Equity Consideration any actual damages suffered or expenses
reasonably incurred by it as a result of any breaches of representations and
warranties by Debtor set forth in Exhibit C to this Plan to the extent that
such damages and expenses exceed $100,000. Neither the Equity
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Interests Trust nor any holder of an Equity Interest shall have any
obligation to return any portion of the Equity Consideration received by the
holder or the Equity Interests Trust or any liability to Osmonics and/or
reorganized Debtor beyond Osmonics's Set-Off Right in accordance with this
section, except for liability arising out of any fraud or intentional
misrepresentations by the Debtor.
(2) Within thirty (30) days after the end of each calendar quarter
following the Effective Date, Osmonics shall give the Equity Interests Trustee
written notice describing in detail any Set-Off Right that Osmonics intends to
exercise and with respect to which a notice has not previously been given.
Osmonics agrees that in the event it becomes consciously aware of any claims or
conditions that would give rise to a Set-off Right, both the Debtor and
Osmonics will act in a commercially reasonable manner (as determined without
regard to Osmonics's Set-off Right) in resolving such claims or responding to
such conditions.
(e) Termination of Equity Interests. Upon the Effective Date, all Equity
Interests shall automatically be canceled.
3.6 Disputed Claims Reserve.
Ten (10) days after the Effective Date, the distributions
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reserved for the holders of disputed claims shall be delivered to the
Disbursing Agent (Debtor's Counsel) but shall be held in a segregated,
interest bearing account (the "Disputed Claims Reserve") for the benefit of
holders of disputed claims entitled thereto under the Plan. At the option
of the reorganized Debtor, any claim not previously settled may be objected by
filing a written objection within forty (40) days of the Effective Date.
Any claim not objected to by that time will be deemed allowed. There will
be deposited into the Disputed Claims Reserve an amount of cash which would
have been distributed on account of the disputed claims if all disputed
claims were allowed in the full amount claimed by the holders thereof, plus
an amount of interest estimated by the Disbursing Agent as adequate to pay
the claim, if allowed in full, plus accrued interest.
ARTICLE IV - IDENTIFICATION OF CLASSES IMPAIRED
UNDER THIS PLAN
Claims in Classes 1 and 2 are not impaired under the Plan. Claims in
Classes 3 and 4 and Interests in Class 5 are impaired under the Plan.
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ARTICLE V - MEANS FOR EXECUTION AND
IMPLEMENTATION OF THE PLAN
5.1 Osmonics
(a) Osmonics agrees that by signing the Plan, it will fully support the
Plan and, subject to the Confirmation order, it will proceed and carry out all
of its obligations under the Plan and each and every one of its and MSI's
obligations under the Settlement Agreement.
(b) Osmonics, at the time the Plan is filed, has delivered to counsel for
Debtor its stand-by irrevocable letter of credit payable to Debtor in an amount
of $2,500,000 payable upon withdrawal of support for the plan by Osmonics or
failure of Osmonics to fulfill its obligations under the Plan, as confirmed.
If Osmonics elects to pay the said $2,500,000, the said Letter of Credit shall
be returned to it.
(c) Osmonics agrees, on and after the Effective Date, to pay to the
Disbursing Agent (Debtor's Counsel) all amounts necessary to pay all allowed
and disputed Class 1, 2, 3, and 4 Claims (other than the Kenyon & Kenyon
disputed claim), including the amounts due to Pall pursuant to the Settlement
Agreement, less any deposit paid to date, in any event not to exceed the Funded
Amount, and to pay to the Equity Interests Trust on behalf of the Equity
Interests in Class 5 an amount equal to ninety
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(90%) percent of the Equity Consideration. In any event, the aggregate
payments by Osmonics under the Plan shall not exceed the Funded Amount.
5.2 Use of Debtor's Cash
Debtor's cash (up to a maximum of $3,200,000), on the Effective Date will
be surrendered to Disbursing Agent for the payment of Class 1-4 Claims,
including the amounts due to Pall pursuant to the Settlement Agreement,
but excluding the Kenyon & Kenyon disputed claim and 90% of the Equity
Consideration to the Equity Interests Trust.
5.3 Equity Interests Trust
On or before Confirmation, the Debtor will seek to appoint Debtor's
counsel as the Equity Interests Trustee subject to approval of the Bankruptcy
Court. The Equity Interests Trustee shall (a) receive and direct the
litigation denominated MSI v. Kenyon & Kenyon, (b) represent the holders of
Equity Interests should Osmonics, Inc. hold back or set-off against the 10%
Equity Consideration, (c) distribute the net proceeds of the 10% Equity
Consideration and the K & K litigation when received, (d) distribute the net
proceeds of the ninety (90%) percent Equity Consideration, (e) pay to the
Disbursing Agent the amount of the Kenyon & Kenyon claim plus an amount
necessary to pay the claim with interest, for deposit in the Disputed Claim
Reserve, and (f)
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perform such other duties as the Court may direct.
5.4 Issuance of Shares to Osmonics. Upon the Effective Date, the New
Common Stock shall be issued to Osmonics, which shares shall then be the only
outstanding capital stock of reorganized Debtor.
5.5 Resignations/Elections. Upon the Effective Date, all officers and
directors of Debtor immediately prior to the Effective Date shall be deemed to
have resigned, and the following officers and directors shall be elected:
D. Dean Spatz Director
L. Lee Runzheimer Director
James S. Johnson Director
D. Dean Spatz Chief Executive Officer
James S. Johnson President and
Chief Operating Officer
L. Lee Runzheimer Treasurer
Ruth Carol Spatz Secretary
5.6 Corporate Authority. Upon the Effective Date, any officer of Osmonics
or, with Osmonics' approval, of the reorganized Debtor, shall have the
authority and power to execute any document and to take any other action on
behalf of the reorganized Debtor to otherwise effectuate the provisions of this
Plan.
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ARTICLE VI - TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
6.1 Upon the Effective Date, each of the leases and executory contracts
set forth on Exhibit C as specifically approved by Osmonics and attached hereto
shall be automatically assumed. If any party to a lease or contract objects to
assumption thereof or asserts that a payment must be made as a condition of
assumption, such objection and/or assertion must be set forth in writing filed
with the Bankruptcy Court by the date set for the filing of objections to
Confirmation and served in the same manner as objections to Confirmation.
Cure payments and assurance of future performance shall be the responsibility
of Osmonics, Inc..
6.2 The Debtor reserves the right on behalf of Osmonics to amend Exhibit C
at any time prior to the Effective Date, and the listing of any lease or
executory contract on Exhibit D shall not constitute an assumption of any such
lease or contract prior to the Effective Date. Any party to a lease or
contract which is affected by an amendment to Exhibit C shall be provided
written notice of such amendment and shall have 30 days after the mailing of
such notice to object or make a claim or assertion in connection with such
amendment.
6.3 Every executory contract and unexpired lease which was not rejected or
assumed during the Debtor's Chapter 11
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proceedings and is not listed on Exhibit C (in its final form as of the
Effective Date) shall be deemed rejected as of the Effective Date including,
without limitation, the agreement dated December 18, 1991, between MSI and Pall
Corporation. Any entity with a claim arising from such rejection shall be
deemed to hold a Class 3 Claim and shall file a proof of claim within 30 days
after the Effective Date or be forever barred from asserting any claim. The
Debtor reserves the right to apply to the Bankruptcy Court prior to the
Effective Date to assume or reject any executory contract or unexpired lease.
ARTICLE VII - ACCEPTANCE OR REJECTION OF THE PLAN
7.1 Holders of Class 5 Equity Interests and Class 3 and 4 Claims shall be
requested to vote to accept or reject this Plan.
7.2 Class 5 (Equity Interests) shall have accepted the Plan if two-thirds
in amount of the Equity Interests who vote on the Plan have accepted the Plan.
Holders of record on the Bar Date shall be the holders requested to vote on
Class 5 Equity Interests. Class 3 and 4 shall have accepted the Plan if
two-thirds in number and a majority in amount of those who actually vote on the
Plan have accepted the Plan.
7.4 In the event that any impaired class shall fail to accept the Plan,
the Debtor may request that the Bankruptcy Court confirm the Plan in accordance
with Section 1129(b) of the
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Bankruptcy Code.
ARTICLE VIII - VESTING OF ASSETS
8.1 Upon the Effective Date, all of the Debtor's Assets except those
Assets that are abandoned or expressly transferred to the Equity Interests
Trust shall vest in the reorganized Debtor, free and clear of all claims and
interests of any kind. The cause of action against Kenyon & Kenyon shall vest
in the Equity Interests Trust.
ARTICLE IX - MODIFICATION OR WITHDRAWAL OF PLAN
9.1 The Plan may be modified in accordance with the provisions of
Bankruptcy Code. If all parties adversely affected by any modification consent
to such modification, (i) the Disclosure Statement previously submitted in
connection herewith shall be deemed adequate to all parties, (ii) no further
modifications or additions to such Disclosure Statement shall be required, and
(iii) no further notice shall be given. In addition, after Confirmation, the
reorganized Debtor may, subject to approval of the Bankruptcy Court, remedy any
defect or omission, reconcile any inconsistencies in the Plan or in the
Bankruptcy Court's Order confirming the Plan, and execute and deliver such
documents and agreements as may be necessary, in the judgment of the Debtor, to
carry out the purpose and intent of the Plan.
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9.2 If the Plan is not confirmed by February 27, 1998, it shall be deemed
to be withdrawn.
ARTICLE X - RELEASE
Except as otherwise expressly provided in the Joint Plan, on the
Effective Date, the reorganized Debtor, the Committee, and all creditors
and parties in interest (i) who have held or hold claims, or (ii) who have
held or hold Equity Interests, in consideration of the promises and
obligations undertaken under the Joint Plan will be deemed to have forever
waived, released and discharged all rights or claims, or obligations whether
based upon tort, fraud, contract or otherwise, which they heretofore, now or
hereafter, possess or may possess against Debtor, its officers, directors,
agents, shareholders, and employees.
ARTICLE XI - RETENTION OF JURISDICTION
The Bankruptcy Court shall retain jurisdiction with respect to the
Debtor's case pursuant to the provisions of Chapter 11 of the Bankruptcy
Code until all Claims and Equity Interests affected by this Plan are
Finally Determined, and with respect to the following matters:
10.1 To enable the Debtor to commence, prosecute, settle, compromise,
abandon or consummate any and all claims of the Debtor against any person
or entity, except as
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otherwise provided in the Joint Plan;
10.2 To adjudicate all controversies concerning the classification of
any Claims or Equity Interests;
10.3 To hear and determine all Claims arising from the rejection of
any executory contract or unexpired lease and to consummate the rejection
thereof;
10.4 Except as otherwise provided by the Plan, to adjudicate all
Claims to a security or ownership interest in any Properties of the Debtor
or in any proceeds thereof.
10.5 To liquidate damages or estimate Claims in connection with any
disputed, contingent or unliquidated Claims;
10.6 To hear and determine all controversies, suits and disputes that
may arise in connection with the interpretation, consummation or
performance of this Plan as well as all controversies, suits and disputes
that may be pending before the Bankruptcy Court on or before the
Confirmation Date.
10.7 To determine and allow all expenses of
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administration incurred prior to or on the Confirmation Date, including
all requests for compensation of fees and expenses by Debtor's counsel,
including special counsel and counsel to the Creditor's Committee and, to the
extent permitted by applicable law and approved by the Bankruptcy Court,
reimbursement of reasonable expenses of members of the Committee;
10.8 To recover all assets and properties of the Debtor, wherever located.
10.7 To interpret, construe or enforce the Joint Plan or any order
previously entered herein;
10.8 Except as otherwise provided in the Plan, to hear, determine and
enforce any and all causes of action that the Debtor may have brought, or
the Debtor may bring, to set aside liens or encumbrances, to recover any
transfers, assets or damages to which the estate may be entitled, or to
subordinate or disallow, in whole or in part, any Claim herein, under
applicable provisions of the Bankruptcy Code and other Federal, State or
local law, and to determine allowance of fees and disbursements of counsel
in connection therewith;
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10.9 To insure that the purpose and intent of the Joint Plan are
effectuated;
10.10 To hear and determine all issues with regard to the
administration and operation of the Equity Interests Trust.
10.11 To adjudicate all claims and controversies between Osmonics,
Inc. and the Equity Interests Trust.
10.12 To make such orders as are necessary or appropriate to carry out
the provisions and intent of the Joint Plan.
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MICRON SEPARATIONS, INC.
By: /s/ James [Illegible]
-------------------------
President
OSMONICS, INC.
By: /s/ Dean Spootz
-------------------------
President
Dated: December 15, 1997
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TABLE OF CONTENTS
ARTICLE I - DEFINITIONS 2
ARTICLE II - CLASSIFICATION OF CLAIMS AND INTERESTS 9
ARTICLE III - TREATMENT OF CLAIMS AND EQUITY INTERESTS BY
CLASSES 9
ARTICLE IV - IDENTIFICATION OF CLASSES IMPAIRED UNDER THIS
PLAN 15
ARTICLE V - MEANS FOR EXECUTION AND IMPLEMENTATION OF THE
PLAN 15
ARTICLE VI - TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED
LEASES 18
ARTICLE VII - ACCEPTANCE OR REJECTION OF THE PLAN 20
ARTICLE VIII - VESTING OF ASSETS 20
ARTICLE IX - MODIFICATION OR WITHDRAWAL OF PLAN 21
ARTICLE X - RELEASE 21
ARTICLE XI - RETENTION OF JURISDICTION 22
<PAGE> 27
Exhibits to the Joint Plan
Exhibit A: Equity Interests Trust
Exhibit B: Settlement Agreement
Exhibit C: Reps and Warranties
Exhibit D: Leases and Executory Contracts
Exhibits to the Disclosure Statement
Exhibit A: Liquidation Analysis (done by KPMG)
<PAGE> 28
EXHIBIT C TO JOINT PLAN OF REORGANIZATION
In consideration of Osmonics becoming a joint proponent of the Plan, and except
as set forth in the Disclosure Statement filed with the Joint Plan or a
schedule hereto, the Debtor hereby, represents, warrants and covenants to
Osmonics as follows:
1.1 Corporate Existence and Power. The Debtor is a corporation
duly incorporated, validly existing and in good standing under the Laws of the
State of New York, without taking into account the effect of the application of
the U.S. Bankruptcy Code, and has all corporate powers and all governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted. The Debtor is duly qualified to do business as a
foreign corporation and is in good standing in the Commonwealth of
Massachusetts and in each jurisdiction where the character of the property
owned or leased by it or the nature of its activities makes such qualification
necessary, except for those jurisdictions where the failure to be so qualified
would not, individually or in the aggregate, have a material adverse effect on
the condition (financial or otherwise), business, assets, results of operations
or prospects of the Debtor and the Subsidiaries (as defined in Section 1.3),
taken as a whole (a "Material Adverse Effect"). The Debtor has heretofore
delivered to the Osmonics true and complete copies of the Debtor's articles of
incorporation and bylaws (collectively, the "Organizational Documents") as
currently in effect.
1.2 Governmental Authorization. The execution, delivery and
performance by the Debtor of this Agreement and the consummation of the
Acquisition by the Debtor require no action by or in respect of, or filing
with, any governmental body, agency, official or authority other than the
approval of the U.S. Bankruptcy Court for the Western Division of the District
of Massachusetts and possible application of Hart- Scott-Rodino if Debtor's
total assets exceed $10,000,000 at the Effective Date.
1.3 Subsidiaries.
1.3.1 "Subsidiary" means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are
directly or indirectly owned by the Debtor.
1.3.2 Each Subsidiary is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the character of the property owned
or leased by it or the nature of its activities make such qualification
necessary, except for those jurisdictions where failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect.
1.3.3 Except as set forth on SCHEDULE 1.3, all of the
outstanding capital stock of, or other ownership interests in, each Subsidiary,
is owned by the Debtor, directly or indirectly, free and clear of any Lien and
free of any other limitation or restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests).
1.3.4 There are no outstanding:
1.3.4.1 Securities (as such term is applied in
interpreting the securities laws of the United States) of the
Debtor, or any Subsidiary, which are convertible into or
exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary; and
<PAGE> 29
1.3.4.2 Options or other rights to acquire from
the Debtor or any Subsidiary, and no other obligation of the
Debtor or any Subsidiary to issue, any capital stock, voting
securities or other ownership interests in, or any securities
convertible into or exchangeable for any capital stock,
voting securities or ownership interests in, any Subsidiary
(the items in Sections 1.3.4.1 and 1.3.4.2 being referred to
collectively as the "Subsidiary Securities"). There are no
outstanding obligations of the Debtor or any Subsidiary to
repurchase, redeem or otherwise acquire any outstanding
Subsidiary Securities.
1.4 Financial Statements.
1.4.1 Except as set forth on SCHEDULE 1.4, the
audited consolidated financial statements for the year ending on October 27,
1996, and each of the immediately two preceding fiscal years of the Debtor
(including the notes thereto) and the unaudited financial statements of the
Debtor for the period ending on OCTOBER 26, 1997, a true copy of which has been
provided to Osmonics (collectively, the "Financial Statements"), were prepared
in accordance with the books and records of the Debtor, and fairly present, in
conformity with generally accepted accounting principles consistently applied
throughout the periods indicated, except as otherwise indicated in the notes to
the Financial Statements, except for disclosure of earnings per share and
weighted average common and common equivalent share amounts in the statement of
income ("GAAP"), the consolidated financial position of the Debtor and the
Subsidiaries as of the dates thereof and the results of operations,
shareholders' equity and cash flows for the periods then ended subject, in the
case of the unaudited balance sheet, for the month ended OCTOBER 26, 1997, to
year-end adjustments and items customarily disclosed in notes to financial
statements. "Balance Sheet" means the OCTOBER 26, 1997, unaudited balance
sheet of the Debtor and the Subsidiaries prepared in accordance with this
Section and "Balance Sheet Date" means OCTOBER 26, 1997.
1.4.2 All account and note receivables reflected on the
Balance Sheet and additional receivables thereafter acquired by the Debtor and
the Subsidiaries prior to the Effective Date have, except as provided in
SCHEDULE 1.4, arisen in the ordinary course of business.
1.4.3 All reports filed with the U.S. Bankruptcy Trustee
("Reports to Trustee") are true, correct and complete in all material respects.
1.5 Financial Status of Debtor. The Debtor has as of October 26,
1997, and will have as of the moment prior to the date of Confirmation:
1.5.1 a shareholder's equity of not less than -$37,000,
excluding from such calculations (1) all legal and accounting expense incurred
in fiscal year 1997 and 1998, up to the date of Confirmation, (2) any increases
in reserves for non-collectible accounts receivable from the present reserve of
$57,400, such changes not to exceed $13,000 in the aggregate, (3) any increases
in the reserve for obsolete, defective or non-saleable inventory from the
present reserve of $283,669, due to Pall or other litigation, such changes not
to exceed $400,000 in the aggregate, (4) changes in pre-petition claims and
interest thereon including, but not limited to, the increase in Pall
Corporation's claim arising out of the Settlement and Joint Plan (i.e., $13.5
million v. $10.75 million), such changes not to exceed $2,900,000 in the
aggregate; and (5) reduction in the amount of the Company's expected tax
refunds, pursuant to the conclusion of the Federal and State tax audits, not to
exceed $25,000 in changes.
1.5.2 average gross profit margins for the preceding twelve
(12) months of not less than fifty percent (50%);
2
<PAGE> 30
1.5.3 annualized net sales of not less than $8.8 million
based on actual net sales from November 1, 1996 through September 30, 1997; and
1.5.4 annualized operating income (exclusive of taxes,
interest and litigation costs and interest) of not less than $1.4 million for
the fiscal year ended October 26, 1997.
1.6 Disclosure Documents.
1.6.1 None of the information set forth in the Schedules
will, (i) at the time the Plan is filed, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, or (ii) at any time
prior to the Effective Date, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, except as may result solely from
the operation of the business in the ordinary course or the passage of time
which the Debtor and the Subsidiaries shall use its best efforts to disclose to
the Osmonics prior to the Effective Date.
1.7 Absence of Certain Changes. Except for the filing under the
U.S. Bankruptcy Code and except as set forth in SCHEDULE 1.7 or the Balance
Statement or reflected in the Financial Statements, since December 31, 1996,
the Debtor and each Subsidiary has conducted its business in the ordinary
course consistent with past practice and there has not been:
1.7.1 any material adverse change in the business,
assets, condition (financial or otherwise), or results of operations or
prospects of the Debtor or any Subsidiary taken as a whole (a "Material
Adverse Change") or, to Debtor's knowledge, any event, occurrence or
development of a state of circumstances or facts which could reasonably be
expected to result in a Material Adverse Change;
1.7.2 any declaration, setting aside or payment of
any dividend or other distribution with respect to any shares of capital stock
of the Debtor or any Subsidiary, or any repurchase, redemption or other
acquisition by the Debtor or any Subsidiary of any outstanding shares of
capital stock or other securities of, or other ownership interests in, the
Debtor or any Subsidiary;
1.7.3 any incurrence, assumption or guarantee by
the Debtor or any Subsidiary of any indebtedness for borrowed money other than
in the ordinary course of business;
1.7.4 any creation or assumption by the Debtor or any
Subsidiary of any Lien on any asset other than in the ordinary course of
business consistent with past practices;
1.7.5 any making of any loan, advance or capital
contributions to or investment in any person other than loans, advances or
capital contributions to or investments in wholly-owned Subsidiaries made in
the ordinary course of business consistent with past practices;
1.7.6 any damage, destruction or other casualty loss
affecting the Business or the Assets of the Debtor or any Subsidiary which,
individually or in the aggregate, has had or would reasonably be expected to
have a Material Adverse Effect on the Debtor or any Subsidiary;
1.7.7 any transaction or commitment made, or any
contract or agreement entered into, by the Debtor or any Subsidiary relating to
its assets or business (including the acquisition or disposition of any assets)
or any relinquishment by the Debtor or any Subsidiary of any contract or other
right, other than the Pall Settlement and transactions and commitments in the
ordinary course of business consistent with past practices;
1.7.8 any change in any method of accounting or
accounting practice by the Debtor or any Subsidiary, except for any such
change required by reason of a concurrent required change
3
<PAGE> 31
in generally accepted accounting principles as set forth in any note included
in the Financial Statements;
1.7.9 any (i) grant of any severance or termination
pay to any director, officer or employee of the Debtor or any Subsidiary, (ii)
entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any director,
officer or employee of the Debtor or any Subsidiary, (iii) any increase in
benefits payable under any existing severance or termination pay policies or
employment agreements, or (iv) any increase in compensation, bonus or other
benefits payable to directors, officers or employees of the Debtor or any
Subsidiary after October 27, 1996, except as disclosed on SCHEDULE 1.7 or the
Disclosure Statement;
1.7.10 any labor dispute, other than routine
individual grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Debtor or any
Subsidiary, which employees were not subject to a collective bargaining
agreement at the Balance Sheet Date, or any lockouts, strikes, slowdowns, work
stoppages or threats thereof by or with respect to such employees; or
1.7.11 any unaccrued pay for any unused vacation for
any employee.
1.8 Real Property and Leaseholds.
1.8.1 There is listed on SCHEDULE 1.8 or in the
Disclosure Statement:
1.8.1.1 The Debtor owns no Real Property;
1.8.1.2 A description of each lease,
sublease, or other license, use or occupancy agreement
pertaining to any Real Property to which the Debtor or any
Subsidiary is a party
(collectively, the "Leases"), true and complete copies of
which have been provided to the Osmonics; and
1.8.1.3 A description of any option or
right to purchase or lease any parcel of real property. The
Debtor has delivered to Osmonics true, correct and complete
copies of the Leases.
1.8.2 Except as indicated in SCHEDULE 1.8:
1.8.2.1 The Debtor does not own and never
has owned any interest in any real property other than a
leasehold interest. The Debtor has valid leasehold interests
in all of the Real Property. All of the Leases are in full
force and effect and are valid, binding and enforceable in
accordance with their respective terms and there does not
exist under any of the Leases any event which with notice or
lapse of time or both would constitute a default by the Debtor;
1.8.2.2 To the Debtor's knowledge, all of
the plants, buildings, structures and other
improvements (including, without limitation, all of the
electrical, plumbing, heating, HVAC and other building systems
located therein) that are situated on the Real Property are in
good operating condition and repair and have been reasonably
maintained consistent with standards generally followed in the
industry (ordinary wear and tear excepted), are suitable for
their present uses and, in the case of plants, buildings and
other structures (including without limitation, the
roofs thereof), are structurally sound;
1.8.2.3 To the Debtor's knowledge, there
is legal access to the Real Property via public roads
or valid easements over private streets or private property
for such
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ingress to and egress from the Real Property as is necessary
for the conduct of the business of the Debtor;
1.8.2.4 All of the Real Property is serviced
by all utilities as are necessary for the conduct of
the Business and, to the Debtor's knowledge, there are no
threatened curtailment or reduction of any such utilities;
1.8.2.5 To the Debtor's knowledge, there
are no developments affecting any of the Real Property pending
or, threatened, which might interfere with any present or
intended use of such property by the Debtor.
1.9 Environmental Matters. Except as disclosed on SCHEDULE 1.9:
1.9.1 There is no Environmental Claim (as herein defined)
pending, or to the best knowledge of the Debtor, threatened, against the Debtor
or any Subsidiary or with respect to any of their respective properties or
assets;
1.9.2 There are no events or incidents caused by the
Debtor or its Subsidiaries or to the knowledge of the Debtor caused by any
other party, including, without limitation, the release, emission, discharge,
storage, generation, treatment or disposal of any Hazardous Substance (as
herein defined), that could form the basis of any valid Environmental Claim
against the Debtor, or with respect to any of its properties or assets. To the
knowledge of the Debtor, no property or facility now or previously owned or
leased by the Debtor or any Subsidiary is listed or proposed for listing by a
state or federal government, as a site requiring investigation or clean-up
under any Environmental Law;
1.9.3 The Debtor and each Subsidiary has not transported or
arranged for the transportation (directly or indirectly) of any Hazardous
Substance to any location which is, to the knowledge of the Debtor, listed or
proposed for listing under CERCLA or any other similar Environmental Law, or
which is, to the Debtor's knowledge, the subject of federal, state, local or
foreign enforcement actions or other investigation which may lead to claims
against the Debtor or any Subsidiary for clean-up costs, remedial work or
damages to natural resources or for personal injury claims.
1.9.4 There have been no written documents or reports
regarding environmental investigations, studies, audits, tests, reviews or
other analyses conducted by or which are known to or in the possession of the
Debtor or any Subsidiary, and there have been no Orders, known to or in
possession of the Debtor, in relation to any property or facility now or
previously owned or leased by the Debtor or any Subsidiary which have not been
delivered to the Osmonics prior to the date hereof.
1.9.5 No Hazardous Substance has been generated, treated,
stored, released, disposed or otherwise placed on or deposited by the Debtor in
the Real Property or any real property previously owned, leased or used by the
Debtor or any Subsidiary during or prior to the ownership, or during the lease
or use, of such real property by the Debtor or any Subsidiary in an amount
which would require cleanup or other remedial action under Environmental Laws.
1.9.6 No above ground or underground tanks are or have ever
been located under, in or about the Real Property or any real property
previously owned, leased or used by the Debtor, which tanks were located on
such real property during or prior to the ownership, lease or use of such real
property by the Debtor.
1.9.7 No Real Property or any real property previously
owned, leased or used by the Debtor or any Subsidiary is listed or, to the best
knowledge of the Debtor, is proposed for listing,
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on the National Priorities List promulgated pursuant to CERCLA, or any other
similar Environmental Laws, and to the Debtor's knowledge, no real estate
previously owned, leased or used by the Debtor is listed or proposed for
listing on National Priorities List or any other similar Environmental Law.
1.9.8 The following terms shall have the meanings set forth
below:
1.9.8.1 "Environmental Claim" shall mean any notice
alleging liability by the Debtor or any Subsidiary (including,
without limitation, liability for investigatory costs,
clean-up costs, monitoring costs, governmental response costs,
natural resources damages, property damages, liability for
nuisance or damage to property values, personal injuries or
penalties) arising out of, based on or resulting from: (a)
noncompliance with Environmental Laws by the Debtor, any
Subsidiary, or by any of their respective Affiliates; their
employees or agents, (b) the environmental condition of any
real or personal property owned or leased by the Debtor or any
Subsidiary, or (c) the release into the environment of any
Hazardous Substance by the Debtor, any Subsidiary, any of
their respective Affiliates, their employees or agents.
1.9.8.2 "Environmental Laws" shall mean all
applicable Laws, Orders or Permits relating to: (a) pollution
or protection of the environment, including natural resources;
(b) exposure of any individual, including employees of the
Debtor and the Subsidiaries, to any Hazardous Substance or
other products, materials or chemicals; (c) protection of
human health or welfare from the effects of products,
by-products, wastes, emissions, discharges or releases of
chemical or other substances from industrial or commercial
activities; (d) regulation for the protection of the
environment relating to the manufacture, use or introduction
into commerce of substances, including, without limitation,
use of or rights with respect to their manufacture,
formulation, packaging, labeling, distribution,
transportation, handling, storage and disposal; and (e)
regulation generally of the use of the environment, including,
without limitation, ambient air, surface water, ground water,
and surface or subsurface strata. For purposes of this
definition, the term "Environmental Laws" shall include,
without limitation, the following statutes: (a) the Clean Air
Act, as amended, 42 U.S.C. Sections 7401 et seq.; (b)
the Federal Water Pollution Control Act, as amended, 33 U.S.C.
Sections 1251 et seq.; (c) the Resource Conservation
and Recovery Act of 1976, as amended, 42 U.S.C. Sections
6901 et seq. ("RCRA"); (d) the Comprehensive
Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Sections 9601 et seq., as
amended by the Superfund Amendments and Reauthorization Act of
1986 ("CERCLA"); (e) the Toxic Substances Control Act, as
amended, 15 U.S.C. Sections 2601 et seq.; (f) the
Occupational Safety and Health Act, as amended, 29 U.S.C.
Section 651; (g) the Emergency Planning and Community
Right-to-Know Act of 1986, 42 U.S.C. Sections 801 et
seq. ("Right-to-Know-Act"); (h) the Mine Safety and Health Act
of 1977, as amended, 30 U.S.C. Sections 801 et seq.;
(i) the Safe Drinking Water Act, 42 U.S.C. Sections
3008 et seq.; and (j) all applicable United States, state,
local and foreign laws, statutes, rules regulations,
judgments, orders decrees, stipulations or charges for the
protection of the environment.
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1.9.8.3 "Hazardous Substance" shall mean: (a) any
"hazardous substance" as defined in CERCLA, 42 U.S.C. Section
9601(14); (b) any "pollutant or contaminant" as defined in
CERCLA, 42 U.S.C. Section 9601(33); (c) any "hazardous
waste" as defined in RCRA, 42 U.S.C. Section 6903(5); (d)
any asbestos, dioxins, polychlorinated biphenyls, uranium,
radioactive isotopes and other nuclear by-products, toxic
substances or petroleum products, by-products or derivatives;
(e) any substance, whether liquid, solid or gas that is
recognized as presenting a significant risk or an adverse or
harmful effect upon human health, upon animals or upon air,
water, land, natural resources or any other aspects of the
environment; and (f) any other substance classified as
hazardous, dangerous or otherwise regulated under any
Environmental Law.
1.9.8.4 "Person" shall mean any individual,
corporation, partnership, firm, joint venture, association,
joint stock Debtor, trust, unincorporated organization,
governmental or regulatory body or other entity.
1.9.9 SCHEDULE 1.9 includes a list of (a) any Hazardous
Substance which the Debtor or any Subsidiary produces or uses which is required
to be listed and reported or disclosed by the Debtor to state or federal
regulatory agencies under any applicable Environmental Law, and (b) any
reporting or disclosure requirements, permits or registrations relating
thereto, including the actual permit or registration number.
1.10 Tangible Personal Property.
1.10.1 There is listed on SCHEDULE 1.10:
1.10.1.1 a description of each item of tangible
personal property (the "Tangible Personal Property") owned by
the Debtor or any Subsidiary having on the date hereof either
an original cost in excess of $1,000.00 or not owned by the
Debtor or any Subsidiary but in the possession of or used in
the business of the Debtor or any Subsidiary and having rental
payments therefor in excess of $100.00 per month or $1,200.00
per year;
1.10.1.2 a description of the owner of, and any
agreement relating to the use of, each such item of Tangible
Personal Property not owned by the Debtor or any Subsidiary;
and
1.10.1.3 a list of all Tangible Personal Property not
located on the business premises of the Debtor or any
Subsidiary as of the date shown on SCHEDULE 1.10, including
the location of such personal property by street address, the
cost of such Tangible Personal Property, and the name of the
entity which is in possession or control of such personal
property.
1.10.2 Except as indicated in SCHEDULE 1.10:
1.10.2.1 except as provided in Section 1.10.1.2, the
Debtor or the relevant Subsidiary, as the case may be, has
sole and exclusive good and marketable title to each item of
its Tangible Personal Property listed pursuant to Section
1.10.1 free and clear of all Liens, except for Liens, if any,
for personal property taxes not due;
1.10.2.2 each item of Tangible Personal Property
listed on SCHEDULE 1.10 leased by the Debtor or any Subsidiary
is in such condition as of the date hereof that upon the
return of such property to its owner in its present condition
at the end
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of the relevant lease term or as otherwise contemplated by the
applicable agreement between the Debtor or the relevant
Subsidiary and the owner or lessor thereof, the obligations of
the Debtor or the relevant Subsidiary to such owner or lessor
will be discharged;
1.10.2.3 the Tangible Personal Property listed in
SCHEDULE 1.10 taken as a whole is in good operating condition
and repair, is fit for its intended purposes, is free of any
defects, all of the machinery is utilized by the Debtor in its
ordinary course of business, is adequate for existing levels
of production, has been maintained in a reasonable commercial
manner, and does not require any major repair or overhaul;
1.10.2.4 except as provided in Section 1.10.1.2, the
Debtor or the relevant Subsidiary owns or otherwise has the
right to use all of the Tangible Personal Property now used by
it in the operation of the Business; and
1.10.2.5 the quantity of all inventory, including but
not limited to work-in-process, raw materials, and finished
goods inventory, wrapping, packaging materials and supplies
and similar items of Debtor utilized in, related to or arising
from, the Business, in each case wherever the same may be
located (the "Inventory"), represented in the Financial
Statements are correct as of the date of the respective
Financial Statements. The Inventory is free from all material
defects; the finished goods Inventory is saleable in the
ordinary course of business without additional cost or
expense; the values at which the Inventories held for sale in
the normal course of business are shown in the Balance Sheet
at the lower of cost or market; and, the amount of reserves on
the Balance Sheet for Inventory that is excessive, defective,
obsolete or otherwise unsaleable in the ordinary course of the
Business is adequate.
1.11 Intellectual Property.
1.11.1 For purposes of this Exhibit C, the term
"Intellectual Property" means all intangible property rights of every kind and
nature, owned, used or held for use by the Debtor or any Subsidiary.
1.11.2 SCHEDULE 1.11 or the Disclosure Statement
contains a list of the following Intellectual Property Rights:
1.11.2.1 all inventions which are the subject of
issued letters patent or an application therefor;
1.11.2.2 all trade and service marks, logos, and
slogans indicating which have been registered or for which an
application for registration is pending;
1.11.2.3 all writings including but not limited to
computer software for which a claim for copyright by the
Debtor exists;
1.11.2.4 all manufacturing and testing processes,
procedures, designs, specifications and formulae for the
production or testing of any past, current, or proposed (to
the extent they exist) Products;
1.11.2.5 all designs, specifications, blue prints and
operating procedures and manuals for all equipment used in the
manufacture and testing of past, current, or proposed
Products; and
1.11.2.6 all computer software used by the Debtor.
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1.11.3 SCHEDULE 1.11 sets forth as to each such
Intellectual Property Right, as applicable:
1.11.3.1 The nature of such Intellectual Property
Right;
1.11.3.2 The owner of such Intellectual Property
Right;
1.11.3.3 The jurisdictions by or in which such
Intellectual Property Right has been issued or registered or
in which an application for such issuance or registration has
been filed, including the respective registration or
application numbers;
1.11.3.4 The date such Intellectual Property Right was
issued or registered;
1.11.3.5 The date any registration of such
Intellectual Property Right expires;
1.11.3.6 The location of any documents containing or
embodying such Intellectual Property Rights; and
1.11.3.7 Licenses, sublicenses and other agreements as
to which the Debtor or any Subsidiary is a party and pursuant
to which the Debtor, any Subsidiary or any other person is
authorized to use any Intellectual Property Right, including
the identity of all parties thereto, subject matter thereof,
true and complete copies of which have been provided to the
Osmonics.
1.11.4 Except as set forth in SCHEDULE 1.11, or in the
Disclosure Statement, the Debtor or a Subsidiary, as the case may be, is the
sole and exclusive owner of, with all right, title and interest in and to, the
Intellectual Property Rights (free and clear of any Lien) and has sole and
exclusive rights (without being contractually obligated to pay any compensation
to any third party in respect thereof) for the use thereof or the covered
thereby in connection with the services or products in respect of which they
are being used and the consummation of the Acquisition will not have an adverse
effect on the Debtor's right to use such Intellectual Property Rights and the
Debtor has not sold, conveyed, licensed or otherwise granted any interest in
the Intellectual Property Rights.
1.11.5 Except as set forth in SCHEDULE 1.11, or in the
Disclosure Statement, (i) none of the Intellectual Property Rights that are
owned by the Debtor or used by the Debtor unlawfully infringe upon the
intellectual property rights of any other person or entity and (ii) except as
set forth in the Disclosure Statement, neither the Debtor nor any Subsidiary,
has been sued or charged with or been a defendant in any claim, suit, action or
proceeding relating to its business and which involves a claim of infringement
of any intellectual property rights. Except as set forth in SCHEDULE 1.11, or
in the Disclosure Statement, there are no claims of infringements of
intellectual property rights made by the Debtor or any Subsidiary and to the
Debtor's knowledge, there are no infringements by any other person of any
Intellectual Property Rights. Except as set forth in SCHEDULE 1.11, or in the
Disclosure Statement, no Intellectual Property Right is subject to any
outstanding Order or agreement restricting the use thereof by the Debtor or any
Subsidiary or restricting the licensing thereof by the Debtor or any Subsidiary
to any person. Except as set forth in SCHEDULE 1.11, or in the Disclosure
Statement, normal and customary implied warranties under the Uniform Commercial
Code, or normal and customary warranties contained in purchase orders, neither
the Debtor nor any Subsidiary has entered into any agreement to indemnify any
other person against any charge of infringement of any patent, trademark,
service mark, trade secret or copyright,
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which agreement is currently in effect or has not expired or terminated, except
as provided in customer purchase contracts entered into the ordinary course of
business.
1.11.6 Except as set forth in SCHEDULE 1.11, and except for issued
patents, trademarks copyrights, none of the Intellectual Property Rights of the
Debtor or any Subsidiary, the value of which to the Debtor or such Subsidiary is
contingent upon maintenance of the confidentiality thereof, has been disclosed
by the Debtor or any Subsidiary to any person other than to employees,
representatives and agents of the Debtor or the Subsidiaries, the Osmonics and
its representatives, technical consultants, and parts and suppliers in the
normal course of the Debtor's business, all of whom are subject to enforceable
confidentiality agreements with the Debtor or the relevant Subsidiary. The
Debtor has taken reasonable efforts consistent with the operation of its
business to protect the confidentiality of its Intellectual Property Rights and
has informed its officers, directors and employees of the Debtor's intention to
protect the confidentiality of the Debtor's Intellectual Property Rights
consistent with the operation of its business.
1.11.7 SCHEDULE 1.11 is a true and complete list of all
employees of the Debtor or any Subsidiary indicating which employees have not
executed confidentiality agreements for the benefit of the Debtor and its
Subsidiaries;
1.11.8 All confidentiality agreements executed by employees
or other persons or entities, are enforceable by the Debtor and its
Subsidiaries, except to the extent limited by legal and equitable limitations
on the availability of specific performance and other forms of relief. The
Debtor has provided the Osmonics with copies of all such confidentiality
agreements.
1.11.9 Except as set forth in SCHEDULE 1.11, the Debtor's
computer systems are fully operational and, the Debtor believes, perform
according to their specifications and all computer software programs
("Software") used in the Business are functional on the applicable Debtor's
computers or adequate to do the business. Except as identified in SCHEDULE
1.11, the Debtor's computer systems include adequate manuals for the operation
of all of the Debtor's computer equipment and computer programs. Except as
identified in SCHEDULE 1.11, the Debtor either owns all rights in all Software
used by it or has a valid and enforceable license (copies of which have been
provided to the Osmonics) to use such software and, no such Software is being
used in violation of any terms of such license. The consummation of the
transactions contemplated hereby will not require any consent or payment of
fees in order for the Debtor to continue to use the Software after the
Acquisition.
1.11.10 Except as disclosed in SCHEDULE 1.11, the Debtor's
Products sold during the prior two (2) years are listed in its catalog, which
is distributed to its customers in the ordinary course of its business. A copy
of the Debtor's current catalog, product bulletins, product data sheets,
brochures and other literature (collectively, the "Literature") pertaining to
the Debtor's Products has been furnished to the Osmonics. Except as disclosed
in SCHEDULE 1.11, all artwork and photos necessary to reproduce the Literature
is owned by the Debtor, is available and located on the Real Property. Except
as disclosed in SCHEDULE 1.11, none of the Literature contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained therein not misleading.
1.11.11 SCHEDULE 1.11 includes a description of each and
every "web site" or other electronic interface with other parties which is
owned, used or maintained by the Debtor.
0.0. SCHEDULE 1.12 sets forth all licenses, franchises, permits,
governmental authorizations ("Permits") held or used by the Debtor or any
Subsidiary. Except as indicated on SCHEDULE 1.12,
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the specified Permits held or used by the Debtor are valid, and the Debtor has
not received any notice that any governmental authority or other party intends
to cancel, terminate or not renew any such Permit and the Debtor has provided
the Osmonics with a true and complete copy of all documents relating to the
Permits. Without taking into account the effect of the application of the U.S.
Bankruptcy Court, the Permits consist of all such Permits required to conduct
the Business of the Debtor and each Subsidiary as presently conducted and all
Permits are in full force and effect. Except as set forth in SCHEDULE 1.12,
the completion of the transactions contemplated by this Agreement will not
adversely affect the continued effectiveness of any such Permits. There have
not been any actions or other judicial or adversary proceedings involving the
Debtor concerning any such Permits, nor to the knowledge of the Debtor, is any
such action or proceeding threatened nor is the Debtor aware of any facts or
circumstances which may reasonably be expected to give rise to such an action
or proceeding. Except as disclosed in SCHEDULE 1.12, none of the Permits will
be terminated or be required to be renewed or a fee paid or any consent or
notice given as a result of the Acquisition in order for those Permits to
remain in effect after the Acquisition.
1.12 No Undisclosed Liability. Except as otherwise specifically
set forth in SCHEDULE 1.13, there are no liabilities of the Debtor or any
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances, known to the Debtor, which could reasonably
be expected to result in such a liability including but not limited to any
liability for product warranty expense covered by the Debtor's warranty
policies, if any, other than:
1.12.1 liabilities disclosed or provided for in the Balance
Sheet or in the notes to the Financial Statements, including liability for
product warranty expense or sales covered by the Debtor's warranty policy;
1.12.2 liabilities and expenses incurred in the ordinary
course of business consistent with past practice since the Balance Sheet Date
other than costs and expenses incurred in connection with the Pall litigation
and the bankruptcy proceedings, which individually or in the aggregate are not
materially different in character and do not exceed the amount of the
liabilities reflected on the Financial Statements of the Debtor by more than
five percent (5%);
1.12.3 liabilities represented by proofs of claim filed with
the U.S. Bankruptcy Court, copies of which the Debtor has provided to the
Osmonics;
1.12.4 any liabilities of the Debtor for breach of the
representations contained herein.
1.13 Litigation. Except as set forth in SCHEDULE 1.14 or the
Disclosure Statement, there is no action, suit, investigation or proceeding (or
any basis therefor) pending against, or to the knowledge of the Debtor,
threatened against or affecting, the Debtor or any Subsidiary or any of their
properties before any court or arbitrator or any governmental body, agency or
official.
1.14 Taxes.
1.14.1 Except as set forth in SCHEDULE 1.15:
1.14.1.1 the Debtor and each Subsidiary has timely
filed, and prior to the Effective Date, will timely file all
returns, declarations and reports and information returns and
statements required to be filed prior to the Effective Date
relating to any Taxes (as defined below) (collectively, the
"Returns");
1.14.1.2 as of the time of filing, the Returns:
(1) correctly reflected (and, as
to any Returns not filed as of the date
hereof, will correctly reflect) the facts
regarding the
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income, business, assets, operations,
activities and status of the Debtor and any
other information required to be shown
therein;
(2) constitute (and, as to any
Returns not filed as of the date hereof, will
constitute) complete and accurate
representations of the Tax liabilities for
the periods covered; and
(3) accurately set forth all
items (to the extent required to be included
or reflected in the Returns) relevant to
future Tax liabilities, including the Tax
bases of properties and assets;
1.14.1.3 the Debtor and each Subsidiary has timely
paid or made provision for all Taxes that have been shown as
due and payable on the Returns that have been filed;
1.14.1.4 the Debtor and each Subsidiary has made or
will make provision for all Taxes payable for any periods that
end before the Effective Date for which no Returns have yet
been filed and for any periods that begin before the Effective
Date and end after the Effective Date to the extent such Taxes
are attributable to the portion of any such period ending at
the Effective Date;
1.14.1.5 the charges, accruals and reserves for Taxes
reflected on the Financial Statements are adequate to cover
the Tax liabilities accruing or payable by the Debtor and the
Subsidiaries in respect of periods prior to the date hereof;
1.14.1.6 neither the Debtor nor any Subsidiary is
delinquent in the payment of any Taxes or has requested any
extension of time within which to file or send any Return,
which Return has not since been filed or sent or will not be
filed or sent;
1.14.1.7 no unpaid deficiency for any Taxes has been
proposed, asserted or assessed against the Debtor or any
Subsidiary or any member of any affiliated or combined group
of which the Debtor or any Subsidiary is or has been a member
for which either the Debtor or any Subsidiary could be liable;
1.14.1.8 neither the Debtor nor any Subsidiary has
granted any extension of the limitation period applicable to
any Tax claims and has not waived any such limitation period;
1.14.1.9 neither the Debtor nor any Subsidiary is a
party to any tax sharing agreement with any
corporation; and
1.14.1.10 neither the Debtor nor any Subsidiary has
made any election under Section 341(f) of the Code.
1.14.2 "Tax" (and with the corresponding meaning "Taxes" and
"Taxable") shall include (i) any net income, gross income, gross receipts,
sales, use, ad valorem, franchise, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, property or windfall
profit tax, custom duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest and any penalty,
addition to tax or additional amount imposed by any taxing authority (domestic
or foreign) and (ii) any liability for the payment of any amount of the type
described in clause (i) as a result of being a member of an affiliated or
combined group.
1.15 Contracts.
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1.15.1 Except for agreements, contracts, plans, leases,
arrangements or commitments disclosed in SCHEDULE 1.16, or the Disclosure
Statement, or any other schedule to this Exhibit A, copies of which have been
provided to the Osmonics, (which Schedule has been updated to a date which is
within five (5) business days prior to the date of the Disclosure Statement is
submitted to the Bankruptcy Court), the Debtor and each Subsidiary is not a
party to or subject to:
1.15.1.1 any lease providing for annual rentals of
$2,500.00 or more or any lease arrangements not in the
ordinary course of business;
1.15.1.2 any contract for the purchase of materials,
supplies, goods, services, equipment or other-assets providing
for (a) annual payments by the Debtor or any Subsidiary of
$3,000.00 or more, or (b) payments of $10,000.00 or more in
the aggregate over the term of any contract; provided,
however, the list of purchase orders entered into in the
ordinary course of business contained in SCHEDULE 1.16 may be
updated to a date which is thirty (30) days prior to the date
of the Joint Plan;
1.15.1.3 any agency, representative, dealer, sales,
distribution or other similar agreement providing for the sale
by the Debtor of materials, supplies, goods, services,
equipment or other assets (said SCHEDULE 1.16 shall include
the (a) names of the parties to each such agreement, (b)
whether or not it is an exclusive agreement, and (c) the term
of each such agreement);
1.15.1.4 any partnership, joint venture, or other
similar contract arrangement or agreement;
1.15.1.5 any contract relating to indebtedness for
borrowed money or the deferred purchase price of property
(whether incurred, assumed, guaranteed or secured by any
asset), except contracts relating to indebtedness incurred in
the ordinary course of business in an amount not exceeding
$2,000.00 individually or $10,000.00 in the aggregate;
1.15.1.6 any license agreements, franchise agreements
or agreements in respect of similar rights granted to or held
by the Debtor or any Subsidiary;
1.15.1.7 any contract or other document that
substantially limits the freedom of the Debtor or any
Subsidiary to compete in any line of business or with any
person or in any area or which would so limit the freedom of
the Debtor or any Subsidiary after the Effective Date,
excluding agreements disclosed on SCHEDULE 1.16, or the
Disclosure Statement;
1.15.1.8 employment, severance, deferred compensation,
noncompetition and nondisclosure agreements not otherwise
disclosed in a schedule to this Agreement;
1.15.1.9 foreign exchange, hedging or similar
contracts; or
1.15.1.10 any other contract or commitment not made in
the ordinary course of business which is individually or in
the aggregate material to the Debtor or any Subsidiary.
1.15.2 Except as disclosed in SCHEDULE 1.16, or the
Disclosure Statement, all agreements, contracts, plans, leases, arrangements
and commitments disclosed pursuant to Section 1.16 (the "Contracts") are valid
and binding agreements of the parties thereto, are in full force and effect,
and neither the Debtor or any Subsidiary or, to the knowledge of the Debtor,
any other party thereto is in default under the material terms of any such
Contract.
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1.16 Insurance Coverage. SCHEDULE 1.17 contains a list of all
insurance policies and fidelity bonds (the "Policies") covering the assets,
business, equipment, properties, operations, employees, officers and directors
of the Debtor or the Subsidiary, and the Debtor has made available true and
complete copies of such Polices to the Osmonics. Except as set forth on
SCHEDULE 1.17, there is no claim by the Debtor or any Subsidiary pending under
any of such Policies as to which coverage has been questioned, denied or
disputed by the underwriters of such Policies. All premiums payable under all
such Policies have been paid and the Debtor and each Subsidiary is otherwise in
full compliance with the terms and conditions of all such Policies. Except
as set forth on SCHEDULE 1.17, the Policies (or other policies and bonds
providing substantially similar insurance coverage) have been in effect at all
times during the five (5) year period ending on the date hereof and remain in
full force and effect. Other than as set forth in SCHEDULE 1.17, the Debtor
does not know of any threatened termination of, or premium increase with
respect to, any of such Policies. SCHEDULE 1.17 also sets forth a list of all
claims or payments in excess of $1,000.00 made under all Policies during the
three (3) year period ending on the date hereof. The Policies are of the type
and in amounts required by applicable law or agreement to be carried by the
Debtor and its Subsidiaries.
1.17 Compliance with Laws. Except as specifically described in
SCHEDULES 1.9, 1.15, OR 1.20, the conduct of Debtor's business, the Debtor's
assets and their ownership, use, condition and maintenance by the Debtor or any
Subsidiary, and the Products and their production and sale has not violated and
does not violate any and complies with all Laws, Orders, or/and Permits or other
similar items, including, but not limited to, any of the foregoing pertaining to
(a) the Real Property, or (b) relating to employment matters, discrimination,
payment of wages, employment practices, terms and conditions of employment,
hours, immigration, discrimination, child labor, occupational health and safety,
collective bargaining and the payment and withholding of Taxes and other sums
required by governmental authorities, or (c) to the best of the Debtor's
knowledge, zoning, or (d) city planning, or (e) Environmental Laws (as defined
in Section 1.9), including but not limited to all the requirements of the
Right-to-Know Act (including requirements for employee training meetings
up-to-date employee manual references including Material Safety Data Handling
sheets for all products requiring such sheets and copies of evidence thereof and
all MSDH sheets have been provided to the Osmonics), or (f) foreign corrupt
practices or money laundering.
1.18 Employment Matters. Except as set forth in SCHEDULES 1.13,
1.14, 1.16, 1.19, OR 1.20,:
1.18.1 the Debtor has paid in full, or fully accrued for in
the Financial Statements, all wages, salaries, commissions, bonuses, severance
payments, vacation payments, holiday pay, sick pay, pay in lieu of compensatory
time and other compensation due or to become due to all current employees of
the Debtor for all services performed by any of them as of the date of each
such Financial Statement;
1.18.2 there have not been and there are no labor strikes,
disputes, slowdowns, sympathy strikes, lockouts or other forms of work stoppage
pending or, to the Debtor's knowledge, threatened against or involving the
Debtor or Subsidiary and there have not been and there are no recognitional
picketing at any of the Debtor's locations;
1.18.3 no collective bargaining agreement is currently being
negotiated by the Debtor;
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1.18.4 during the five (5) year period ending on the date of
the filing of the Joint Plan, to the knowledge of the Debtor, there have been
no attempts to organize any of the Debtor's employees; and
1.18.5 no key employee of the Debtor has informed the Debtor
that he or she is considering terminating his or her employment, and the Debtor
has no information to believe that such action may be considered.
1.19 ERISA.
1.19.1 The Disclosure Statement lists all employee welfare
benefit plans and all employee pension benefit plans within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
maintained or contributed to by the Debtor or any Subsidiary, and no trust
funds are so maintained in connection with any employee welfare benefit plan.
The Debtor has delivered or made available to the Osmonics a true, correct and
complete copy of each employee benefit plan identified in the Disclosure
Statement. As to each such employee benefit plan that is funded, the Debtor
has delivered or made available to the Osmonics a true, correct and complete
copy of the most recent annual financial report with respect to such plan, and
any subsequent interim report. Each such financial report and interim report
is an accurate description of the financial status of the subject employee
benefit plan, and there have been no adverse changes in the financial status of
any such employee benefit plan since the date of the most recent report
provided with respect thereto.
1.19.2 SCHEDULE 1.20 specifically identifies each employee
benefit plan which is represented to be a qualified plan under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"). With respect to
each employee benefit plan so identified, the following are true: (i) the plan,
in form and operation, currently satisfies, and for all years subsequent to the
establishment of, such plan has satisfied, the qualification requirements of
Section 401(a) or 403(a) of the Code, as applicable; and (ii) except as
identified on SCHEDULE 1.20, the Internal Revenue Service (the "IRS") has
issued a favorable letter of determination with respect to the plan as amended
to date, and all amendments required by the Code to be adopted prior to the
Effective Time as a condition of retention of such qualified status as of the
date hereof have been or will be adopted within time limits required to
maintain such status. Each plan is and has been operating in compliance with
all amendments required by the Tax Reform Act of 1986 and subsequent
legislation and regulations. The Debtor has delivered or will deliver a true,
correct and complete copy of all letters of determination with respect to all
such plans as amended to date.
1.19.3 Except as set forth in the Disclosure Statement, the
Debtor and each Subsidiary does not maintain or contribute to, nor, has it at
any time maintained or contributed to, any employee benefit plan which is
subject to Title IV of ERISA. Except as set forth in SCHEDULE 1.20 or in the
Financial Statements, all contributions payable to any employee benefit plan
for any plan year ending prior to the date hereof have been paid in full on a
timely basis and no accumulated funding deficiency (as defined in Section
302(a)(2) of ERISA) has been incurred, all contributions payable to any
employee benefit plan for any plan year including the Effective Time have been
paid or accrued on the Financial Statements, and the present value of all
benefits (vested and non-vested) payable under the plans is less than or equal
to the present value of all of the assets of such plan.
1.19.4 The Debtor and each Subsidiary has not engaged in,
nor entered into any arrangement pursuant to which any person or entity is
contractually bound to enter into, any transaction which could result in
imposition upon either the Debtor or any Subsidiary or Osmonics
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of any excise tax under Sections 4971 through 4980B, inclusive, and Section
5000 of the Code or civil liability under Section 502(i) or 502(l) of ERISA or
otherwise incurred a liability for any excise tax, other than excise taxes
which have heretofore been paid or have been accrued, and, in either case are
fully reflected in the Debtor's Balance Sheet.
1.19.5 Except as set forth in SCHEDULE 1.20, the Debtor and
each Subsidiary has (i) filed or will cause to be filed on a timely basis each
and every return, report, statement, notice, declaration and other document
required to be filed prior to the Effective Time with any governmental agency,
federal, state and local (including, without limitation, the IRS, the
Department of Labor, the Pension Benefit Guaranty Corporation and SEC) with
respect to each employee benefit plan sponsored or maintained by the Debtor or
any Subsidiary, and the Debtor delivered or made available to the Osmonics all
records with respect to such plans as are required for their proper
administration and proper continued reporting and disclosure; (ii) timely
complied with all applicable participant disclosure requirements of ERISA; and
(iii) has maintained in full force and effect any bond required under ERISA in
connection with such plans.
1.19.6 The Debtor and each Subsidiary is not and has never
been a member of a controlled group of corporations, an unincorporated trade or
business under common control, or a member of an affiliated service group (as
such terms are defined in Sections 414(b), 414(c) and 414(m) of the Code),
involving any other entity, except as reflected in the Financial Statements.
1.19.7 Except as described in SCHEDULE 1.20, there are no
"leased employees" (as defined in Section 414(n) of the Code) who performed
services for the Debtor or any Subsidiary, nor are there any persons who are
anticipated to become leased employees with the passage of time.
1.19.8 Except as described on SCHEDULE 1.20, the Debtor and
the each Subsidiary does not maintain any employee benefit plan providing
benefits to former employees.
1.19.9 The Debtor has complied in all respects with the
"COBRA" requirements of Section 4980B of the Code.
1.19.10 There are no actions, suits or claims pending or, to
the best knowledge of the Debtor, threatened with respect to any plan listed on
SCHEDULE 1.20 other than routine claims for benefits.
1.20 Products. Except as set forth in SCHEDULE 1.21, each of the
products produced or sold by the Debtor is, and at all relevant times has been,
fit for the ordinary purposes for which such product is intended to be used and
conforms to any warranties made on the container or label or literature for
such products or in connection with its sale. There is no material design
defect with respect to any of the products of the Debtor, and each of such
products contains adequate warnings and labels in accordance with applicable
Laws and current industry practice. Except as disclosed on SCHEDULE 1.10, the
current inventory of all finished products conforms with published and
internal performance specifications for such products.
1.21 Customers and Suppliers.
1.21.1 The Debtor is not engaged in any material disputes
with their respective customers or suppliers, including claims for product
warranty. To the knowledge of the Debtor, no such customer or supplier is
considering termination, non-renewal or any adverse modification of its
arrangements with the Debtor.
1.21.2 Except as set forth in SCHEDULE 1.22, at no time
during the five (5) fiscal years of the Debtor prior to the date of filing the
Joint Plan have the sales, manufacturing or other business operations of the
Debtor or any Subsidiary been adversely affected by shortages or
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unavailability of products or raw materials necessary to sell or manufacture
the products presently sold by the Debtor.
1.22 Indebtedness to and from Officers, Directors and Shareholders.
Except as set forth on SCHEDULE 1.23, the Debtor is not indebted, directly or
indirectly, to any person who is an officer, director or shareholder of any of
the foregoing or any affiliate of any such person in any amount whatsoever,
other than for salaries for services rendered or reimbursable business expenses
incurred in the ordinary course of business, nor is any such officer, director,
shareholder or affiliate indebted to the Debtor except for advances made to
employees of the Debtor in the ordinary course of business consistent with past
practice to meet reimbursable business expenses anticipated to be incurred by
such obligor.
1.23 Banking Facilities. SCHEDULE 1.24 contains a true and
complete list of:
1.23.1 each bank, savings and loan, trust Debtor or similar
financial institution in which the Debtor has an account or safety deposit box
and the numbers of the accounts or safety deposit boxes maintained by the
Debtor thereat; and
1.23.2 the names of all persons authorized to draw on each
such account, to sign checks on each account, to have access to any such safety
deposit box facility or to authorize borrowings by the Debtor from a financial
institution, together with a description of the authority (and conditions
thereof, if any) of each such person with respect thereto.
1.23.3 Vendor Certificate. The Debtor will deliver to
Osmonics a certificate from each vendor of the Debtor and requested by the
Osmonics at least twenty (20) business days prior to the Effective Time, which
vendor certificate shall be substantially in the form attached hereto as
SCHEDULE 1.24.
1.23.4 Section 1445 Certificate. The Debtor will deliver
to Osmonics a certificate from Debtor pursuant to Treasury Regs. Section
1.897-2(h) and Section 1.1445-2(e)(3), and attached hereto as SCHEDULE 1.24 to
the effect that no share of Debtor Stock is a "U.S. Real Property Interest" as
defined in Section 1445 of the United States Internal Revenue Code (the
"Code").
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